September 16, 1999   
This Date's Issues: 3502 • 3503 • 3504

Johnson's Russia List
#3504
16 September 1999
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: INTERPOL Chief Russia Laundering Scheme "Enormous".
2. Russian Privatization and Corporate Governance: What Went Wrong? 
3. The Economist editorial: Terror in Russia.
4. Moscow Times: Brian Whitmore, Does Kremlin Have Sights on Lebed 
Again?
5. Reuters: Kremlin Rejects Talk of Official Link in Blasts.
6. AP: Albright Faults Kremlin Response.
7. Text: Albright on Russia at Carnegie Endowment.
8. Itar-Tass: Putin Orders to Mount Anti-Terrorist Security in Russia.]

*******

#1
INTERPOL Chief Russia Laundering Scheme "Enormous"

GENEVA, Sept 16 (Reuters) - The head of Interpol said on Thursday that the 
alleged Russian money-laundering scheme involving a New York bank was the 
biggest such affair the global crime-fighting agency had come across so far. 

Interpol's British Secretary General Raymond Kendall told Reuters during a 
visit to Geneva that his agency was cooperating with U.S. investigators in 
the probe but that no arrests had been made so far. 

"We are involved," Kendall said. "In dimension terms, it is the biggest 
affair we have seen up to now," he added. 

"What is complex in the Russian situation is that you seem to be dealing with 
corruption taking place at such high levels that the normal ways of 
cooperation you'd use are not necessarily the valid ones," said Kendall. 

"You want to be sure that the information that you are dealing with doesn't 
get to the wrong people...I could not send a message to anyone in Russia, I 
have to be sure that it's not going to get into wrong hands." 

U.S. and British prosecutors are investigating whether Russian mobsters, 
businessmen or officials siphoned more than $15 billion of dollars out of the 
country and laundered them through accounts at the Bank of New York (BK.N). 

Separately, prosecutors are also probing reports that a Swiss firm may have 
bribed Kremlin officials to win hundreds of millions of dollars in contracts 
to renovate public buildings. 

So far, prosecutors have not publicly linked the Swiss and U.S. probes. The 
Swiss Federal Prosecutor's office has said it is ready to assist the U.S. 
investigators if there is a request. 

Their outcome is certain to have an impact in Russia, Switzerland as well as 
in the United States where Vice President Al Gore's Republican opponents have 
seized on his close ties with Russian leaders as ammunition against his 
presidential bid. 

Kendall said investigators had failed so far to find evidence of any illegal 
activity in the affair. 

"It (the Russian affair) is of such enormous dimensions...for laundering 
money that in some cases, it didn't even get into Russia," he said. "It is 
interesting that we haven't yet seen the proof of illegal activity." 

Asked about reports that mobsters laundered the cash through the same 
channels used for tax evasion out of Russia, Kendall said: "Tax evasion is a 
fiscal offence. But the way you move money -- whether you do it for 
money-laundering purposes, whether you do it for tax evasion purposes or 
whether you do it for legal purposes, the same channels are going to be 
used." 

Nobody has been charged in the widening affair. 

Kendall said Russian organised crime groups were much more violent than the 
traditionally mafia-type groups. 

"Russian organised crime groups are essentially still based in Russia but 
they do have more and more connections with people in other countries. The 
menace they represent is increasing every day," he said. 

*******

#2
Date: Thu, 16 Sep 1999
From: Bernard Black <bblack@stanford.edu>
Subject: paper on Russia privatization

Russian Privatization and Corporate Governance:
What Went Wrong? (Sept. 1999)

Bernard Black, Stanford Law School
Reinier Kraakman, Harvard Law School
Anna Tarassova, IRIS (Institutional Reform and the Informal Sector),
University of Maryland, College Park

Abstract

In Russia and elsewhere, proponents of rapid, mass privatization of
state-owned enterprises (ourselves among them) hoped that the profit
incentives unleashed by privatization would revive faltering, centrally
planned economies. Instead, the Russian economy has shrunk steadily since
1991 and suffered a major collapse in 1998, which exposed deep structural
flaws in the privatization effort. We offer here some partial
explanations. First, rapid mass privatization of medium and large firms is
likely to lead to massive self-dealing by managers and controlling
shareholders unless (implausibly in the initial transition from central
planning to markets) a country has a good infrastructure for controlling
self-dealing. Russia accelerated the self-dealing process by selling
control of many of its largest enterprises cheaply to crooks, who got the
funds to buy the enterprises by skimming from the government, and
transferred their skimming talents to the enterprises they acquired.
Second, profit incentives to restructure privatized businesses and create
new ones can be swamped by the burden on business imposed by a combination
of (among other things) a punitive tax system, official corruption,
organized crime, and an unfriendly bureaucracy. Third, while self-dealing
will still occur (though perhaps to a lesser extent) if state enterprises
aren’t privatized, since self-dealing accompanies privatization, it
politically discredits privatization as a reform strategy and can undercut
longer-term reform efforts. A principal lesson is that developing the
infrastructure to control self-dealing is central to successful
privatization of large firms -- as important, and in the early stages,
perhaps more important than privatization itself.


The url for complete text is:

http://papers.ssrn.com/paper.taf?abstract_id=181348

Professor Bernard S. Black tel: 650-725-9845 Stanford Law School
fax: 650-725-0684 Stanford CA 94305 
bblack@stanford.edu 

******

#3
The Economist
September 18-24, 1999
[for personal use only]
Editorial
Terror in Russia 
A bombing campaign is but the latest tribulation for Russians. Even before 
it started, they deserved a better government 

AFTER a series of bombs—five in three weeks, the last-but-one killing 118 
people—even the most phlegmatic of nations would be angry, frightened and 
eager to see the perpetrators caught. In Russia, that most conspiratorial of 
countries, where government is mistrusted and the rule of law tenuous, it is 
no surprise that rumours about the identities and motives of the terrorists 
should be rife (see article). As yet, however, no one can be sure who is 
behind the bombings. In the circumstances, the worst course of action would 
be to use the present confusion as a pretext for a state of emergency or some 
other device for curtailing democracy. 
Like many other countries, Russia has reason to fear Islamic terrorism. Many 
Islamists within its borders would like to break away from the Russian 
Federation. Chechnya, after a long and bloody war, has in effect done so, and 
now seems to be encouraging discontented Muslims in neighbouring Dagestan, 
another southern republic. But brutal though the Chechens are, at least by 
repute, they never resorted to terrorist bombing in cities like Moscow to 
gain their ends, and their fieriest leader, Shamil Basaev, says they are not 
doing so now. Nor has any other Islamist admitted responsibility. 

Unfortunately for Russia, its government is now more incompetent, corrupt and 
generally disreputable than it has been since the collapse of communism at 
the start of the 1990s. President Boris Yeltsin’s fitful rule is seen to be 
ever more designed to serve the purposes of those around him, and ever less 
to serve the interests of the people at large. Accusations of corruption 
among his personal circle swirl endlessly; his cronies, it is said, would 
love to protect themselves from any investigations either now or after his 
presidency ends. They might even like to see parliament suspended and the 
forthcoming elections postponed. 

Well, maybe. But in fact no state of emergency has yet been declared and, 
anyway, a bombing campaign such as the one now terrifying Russia still seems, 
on the face of it, more likely to be organised by separatist zealots, despite 
the absence of Chechen precedents, than by rotten apples in the Kremlin. 
Until more is known, speculation about the Yeltsin “family” circle is 
sterile. 

That does not mean, however, that the government should go contentedly on 
about its business while the police are left to pursue their hunt for the 
terrorists. Even before the bombings, the government was a discredited 
failure and there was no prospect of an improvement, despite constant changes 
of prime minister, as long as Mr Yeltsin remained president. The argument for 
accelerating his departure is as strong now as ever. One way to hasten his 
exit would be to hold a presidential poll at the same time as the 
parliamentary elections that are due in December. It is far from certain that 
a committed democrat would win, but that will be just as far from certain 
next year, when a presidential poll must be held in any event. And an early 
vote would surely be a great deal better than no vote at all, which would be 
the likely outcome of a state of emergency. 

Too soon to abandon hope 

Much hand-wringing is taking place in the West about Russia and who “lost” 
it. In truth, Russia, gloomy as it is, is not utterly lost, nor would it be 
the West’s fault if it were. It would be the Russians’. If the state of 
Russia is to improve—if it is to establish the rule of law, create a market 
economy and entrench democracy—it will be done by Russians, not by outsiders. 
Mr Yeltsin has played a part in changing Russia for the better, but not 
recently. The voters now deserve someone in better health, surrounded by 
capable and honest advisers, and committed to the kinds of reforms that have 
long been talked about but never properly introduced. That person might not 
instantly end the bombing campaign. But, who knows, with a better government 
in Moscow, the malcontents in the regions might even see the merits of 
staying in the federation rather than trying to secede. 

******

#4
Moscow Times
September 17, 1999 
PARTY LINES: Does Kremlin Have Sights on Lebed Again? 
By Brian Whitmore
Staff Writer

Suddenly, the name of Krasnoyarsk Governor Alexander Lebed is on everyone's 
lips. 

On Wednesday, the newspaper Izvestia reported that Lebed may soon be named 
Russia's prime minister, marking a return to the government from which he was 
booted under a cloud of controversy in 1996. 

"The period in which Lebed is deprived of wide ranging power is over," the 
daily wrote. The paper speculated that in the event of President Boris 
Yeltsin's early resignation - a scenario that has been floating around for 
weeks now - Prime Minister Vladimir Putin would become acting president and 
Lebed acting prime minister. 

Putin's KGB record and the popularity of ex-paratrooper General Lebed are a 
winning combination if Kremlin insiders have in mind to declare a state of 
emergency, thus circumventing those pesky elections that are getting so much 
harder to fix. It would also shake the dominance of Kremlin archenemies 
Moscow Mayor Yury Luzhkov and former Prime Minister Yevgeny Primakov, who 
stand to lead the presidential race. 

In an unusually quick response, Kremlin spokesman Dmitry Yakushkin called the 
report of Lebed's imminent return "absolute rubbish." 

But why is the Kremlin even responding? 

Last week, Lebed himself predicted that his services would be required to set 
things straight in war-torn Dagestan and the rest of the country. 

"What is going on in my native country suggests that my skills will be 
demanded soon," Lebed was quoted by the press as saying. "I have the feeling 
that I will have to deal with the mess made by foolish people. No one else 
can do this job." 

Even State Duma Deputy Vladimir Zhirinovsky is getting into the "let's talk 
about Lebed" act. 

In remarks to reporters Tuesday, Zhirinovsky blamed Kremlin-connected 
business tycoon Boris Berezovsky and Lebed - whose election last year as 
Krasnoyarsk governor was financed by Berezovsky - for Monday's deadly 
apartment explosion. Zhirinovsky demanded both Berezovsky's and Lebed's 
arrests, adding that until this happens, "provocations in the country will 
continue." 

The general thrust of all these versii, or versions, is the same. Berezovsky 
is in cahoots with Lebed. The tycoon is counting on the general to take over 
when Yeltsin passes from the scene to protect his safety and his business 
interests. 

Another versiya making the rounds via the Moskovsky Komsomolets newspaper is 
that "the family" is desperately trying to secure its future with Primakov 
before Yeltsin supposedly goes in for an operation on Sept. 21. 

If Yeltsin dies under the knife, reporter Alexander Khinshtein speculates 
that his inner circle "may not even make it on board the presidential 
airplane" to escape the mobs demanding their blood. Khinshtein writes that 
Yeltsin's daughter Tatyana Dyachenko is currently trying to broker the 
family's immunity with the presidential front-runner: Primakov gets the 
Kremlin, "the family" gets off. 

So what to make of all this spin? If Yeltsin is indeed on his last legs, then 
it appears that the president's inner circle is divided about what to do 
next. Part of "the family" - the part led by Berezovsky - wants to bring in 
Lebed and crack heads to protect his interests. Another part - led by 
Dyachenko - wants to cut a deal with Primakov. Either way, "the family" 
proves once again that its most important agenda is covering its own hide. 

*******

#5
Kremlin Rejects Talk of Official Link in Blasts

MOSCOW, Sept 16 (Reuters) - The Kremlin and Russia's domestic security agency 
angrily rejected media speculation on Thursday that security forces might be 
involved in a series of bomb blasts which have killed nearly 300 people. 

The Moskovsky Komsomolets daily has said security forces could have 
engineered the blasts in order to allow the Kremlin to declare a state of 
emergency and cancel planned elections. 

"Here (with the Moskovsky Komsomolets allegations) we are up against obvious 
wickedness," Kremlin spokesman Dmitry Yakushkin said in a statement. 

"By printing such lies, the newspaper effectively assumes for itself a role 
which has nothing to do with journalism. This is the role of the instigator 
and the provocateur," he said. 

The Federal Security Service (FSB), a successor body to the Soviet-era KGB, 
was equally dismissive of the paper's claim. 

"The FSB believes it is essential to declare that such conjectures by certain 
journalists are without foundation," the agency said in a statement. 

"Moreover, in the present difficult situation they are not conducive to a 
comprehensive, objective investigation of the terror acts because they 
undermine citizens' trust in the actions of the authorities," the statement 
said. 

The fourth of a string of explosions in Russia hit the southern Russian town 
of Volgodonsk on Thursday, killing at least 18. 

Moscow had previously been hit by two devastating bombs within a week, one on 
Monday which killed 118 people and the other a week ago which killed 94. 

An earlier bomb in Buynakask in Dagestan, where Russian forces have been 
fighting Chechnya-based separatists, killed 64. 

No one has claimed responsibility for any of the blasts but officials have 
linked them to the Chechen rebels. President Boris Yeltsin has ordered 
Russian forces to isolate Chechnya, a renegade province where Moscow's writ 
has long held no force. 

CONSPIRACY THEORIES ABOUND 

On Thursday the Moskovsky Komsolmolets, whose editor has also aired his 
theory on NTV television, carried an article entitled "Were the bombs hatched 
in the Kremlin?" 

It said the bomb attacks were designed to destabilise the atmosphere in 
Moscow, terrify the population and push the authorities towards taking 
certain unspecified actions sought by the organisers of the blasts. 

The paper pointed a finger at an especially secretive branch of Russia's 
security services which it said had "wide experience" of working with 
explosives. 

It said the timing of the explosions -- in the leadup to December's 
parliamentary election -- was also suspicious. 

Conspiracy theories have abounded in recent days amid the confusion and 
near-panic triggered by the bomb blasts. 

Some have speculated that Yeltsin might be preparing to ditch Prime Minister 
Vladimir Putin -- barely a month into the job -- over the blasts. Others have 
suggested the president himself might be preparing to stand down. 

Parts of the media and the political opposition believe the Kremlin is 
looking for an opportunity to declare a state of emergency in order to cancel 
December's parliamentary election and possibly next summer's presidential 
poll. 

Under this theory, Yeltsin -- who cannot seek a fresh term -- wants to stay 
in power because he and his entourage, which includes his daughter Tatyana 
Dyachenko and powerful businessman Boris Berezovksy, fear being prosecuted by 
the next president. 

The theory has gained in popularity in recent weeks after allegations by 
foreign newspapers of corruption in the highest echelons of the Russian 
state. 

*******

#6
Albright Faults Kremlin Response
September 16, 1999
By BARRY SCHWEID

WASHINGTON (AP) - Secretary of State Madeleine Albright today called on 
Russian President Boris Yeltsin to make fighting corruption a top priority.

Making her appeal in friendly terms - and dismissing any intention to 
embarrass Russia - Albright said the Russian people are losing confidence in 
their government and suffering hardships.

``The problem is real and must be taken seriously,'' Albright said in a 
speech. ``Our message to Russian leaders has been to get tough on corruption 
and to cooperate, in full, with investigations into it.''

Prime Minister Vladimir Putin has sent aides here for talks as Congress 
prepares for hearings next week on whether any U.S. aid to Russia was 
improperly diverted.

The International Monetary Fund has come under criticism from Congress for 
not demanding stricter accounting by Russia of the $20 billion it has lent 
since 1992. IMF officials have said previously that its own review of Russia, 
conducted by the PricewaterhouseCoopers accounting firm, uncovered no 
evidence that IMF funds had been improperly diverted.

A senior IMF official, briefing reporters today in Washington, said his 
agency so far has uncovered nothing to change the findings of the independent 
audit earlier in the year that the $20 billion in loans provided by the IMF 
since 1992 had not been improperly diverted by Russian authorities.

The official, who spoke to reporters in the agency's executive dining room 
under rules preventing use of his name, said he expected the IMF would soon 
hand out the next loan installment once the Russian central bank provides 
extra information that IMF authorities have requested to account for its 
handling of earlier loans. The installment is expected to total around $640 
million.

``We need to be assured everything is clean after this flurry of 
accusations,'' the IMF official said. ``It is important for the central bank 
to come forward and then we will be ready to go forward quickly with the 
Russian program, given how well it is performing.''

Albright declined to say whether the administration suspected any U.S. or 
other Western assistance was misused or whether the Yeltsin government was 
involved. ``We are in the process of having the fullest possible 
investigation,'' she said.

In the speech, Albright dismissed any notion of halting cooperation with 
Russia along a wide spectrum, including efforts to reduce nuclear weapons 
arsenals and to curb the proliferation if dangerous technology.

``The suggestion made by some that Russia is ours to lose is arrogant,'' she 
said. ``The suggestion that Russia is lost is simply wrong.''

The task of political and economic reform in the former Soviet Union is 
herculean but not hopeless, she said. ``It is grounds for encouragement that 
the Russian people have, at every opportunity, made clear their rejection 
both of the Soviet past and a dictatorial future,'' Albright said.

Money laundering is at the heart of the corruption allegations, Billions of 
dollars have flowed through several suspicious accounts at the Bank of New 
York.

Recalling a speech she made last year urging that foreign funds be used to 
help the neediest Russians, and not to enrich foreign bank accounts, Albright 
said: ``The response from Russian authorities has not been adequate.

``President Yeltsin's government needs - at last - to make fighting 
corruption a priority,'' Albright said in the speech at the Carnegie 
endowment for International Peace. ``The Russian legal system remains no 
match for well-connected criminals, and the tentacles of Russian organized 
crime have spread far beyond the nation's borders.

*******

#7
U.S. DEPARTMENT OF STATE
Office of the Spokesman
September 16, 1999

REMARKS OF SECRETARY OF STATE MADELEINE K. ALBRIGHT CARNEGIE ENDOWMENT
FOR INTERNATIONAL PEACE

Washington, D.C.
September 16, 1999

(As prepared for delivery)

Thank you Jessica, and good morning. I am delighted to be here before
such a learned audience, including distinguished members of the
diplomatic corps, as the guest of this venerable and unique
institution.

The Carnegie Endowment has been a training ground for many of the
all-stars in the State Department during the Clinton Administration
and throughout this century. Your programs are a rich source of
information and ideas. You help make our international organizations
more effective. You publish one of the world's indispensable foreign
policy journals. And Mort Abramowitz's brainchild, the Carnegie Moscow
Center, is a truly unique forum for high-level discourse--which is the
State Department's term for no-holds-barred argument--about the full
range of U.S.-Russia issues.

This is appropriate because today, while the rest of America talks
about the weather, I want to talk about Russia. In recent weeks,
reports of alleged money laundering and corruption in that country
have raised questions and aroused some rather extraordinary commentary
on Capitol Hill about the direction in which Russia is headed. I
thought it might be useful to revisit the what, why and how of
American policy towards Russia, in light of the critical future
choices both countries must make.

In so doing, I hope we will bear in mind that Russia is not a wallet
or a set of keys that can be misplaced. It is a nation of almost 150
million people that has, for more than three centuries, been among the
world's major powers. The suggestion made by some that Russia is ours
to lose is arrogant; the suggestion that Russia is lost is simply
wrong.

After all, since the Cold War ended, first President Bush and then
President Clinton have pursued two basic goals in our relations with
Russia. The first is to increase the safety of the American people by
working to reduce Cold War arsenals, stop proliferation, and create a
stable and undivided Europe. The second is to support Russia's effort
to transform its political, economic and social institutions at home.
Neither of these goals has been fully achieved. But neither has been
lost. Each remains a work in progress. And we remain determined to
work with Russia and our Allies to accomplish each.

We are under no illusions that this will happen overnight, nor do we
under-estimate the grave obstacles that exist. Russia is in the midst
of a wrenching transition, made far more difficult by its long history
of highly centralized and, in this century, totalitarian rule.

Eight years ago, when I was still a professor, I participated in a
survey of attitudes towards democracy and free markets in Russia.

It was around the time the Soviet Union broke up. We found the Russian
people eager for change in the abstract, but as Pushkin wrote in a
different context, "lost in the snowstorm" about what democracy would
mean. They seemed poorly prepared for capitalism. The idea of
rewarding more productive work with higher pay was alien. Dependence
on the state was deeply ingrained. People had no experience with
competitive markets. And they were deeply divided not only by
ethnicity, but also by age, gender, level of education and urban from
rural.

My conclusion at the time was that transforming Russia into a
functioning pluralist society with a market system would be a
"Herculean task."

Today, we hear some say the job is not only Herculean, but hopeless. I
do not agree.

Russia's future course is uncertain. A flood of forces, many in
opposition to each other, have been unleashed. Currents of free
enterprise, initiative and greater freedom compete with those of
corruption and crime. Impulses toward integration and openness vie
with tendencies towards isolation and alienation. Time will tell which
of these prevail. All we can be sure of now is that the result will be
distinctively Russian. And that it will depend ultimately far less on
decrees handed down in Moscow -- or on the advice of outsiders -- than
on decisions made and opinions formed in Russia's classrooms, farms,
factories and living rooms.

It is grounds for encouragement, then, that the Russian people have,
at every opportunity, made clear their rejection both of the Soviet
past and a dictatorial future -- despite their dissatisfaction with
the muddy present. They have yet to see democracy produce; but they
have not abandoned democracy's promise.

American policy is based on our own interest in seeing that promise
realized. We want Russian democracy to succeed. And we should never
forget why.

For some of us, the Cold War is already a fading memory. For many, it
is not a memory at all. Today's high school freshmen were four when
the Berlin Wall fell.

But we must remember and learn. The Cold War was not just a useful
background for spy fiction. It was a time of relentless and
institutionalized tragedy; of proxy wars that destroyed lives on every
continent; of barbed wire stretched across Europe's heart; of gulags
and forced confessions; and of countless thousands killed while trying
to escape.

Above all, it was a time of fear -- of showdowns in Korea, Berlin and
Cuba and children taught to hide under their desks. Each night we knew
that within minutes, perhaps through a misunderstanding, our world
could end and morning never come.

Leaders in Washington and Moscow have no greater responsibility than
to ensure that we do not return to that time or any variation of it.

That is why, since the Cold War's end, we have been striving to make
ever more remote the threat of nuclear war and to halt the spread of
nuclear, chemical and biological weapons.

In those great missions, we have made a good start.

Since 1992, our support has helped to deactivate almost 5000 nuclear
warheads in the former Soviet Union; eliminate nuclear weapons from
three former Soviet Republics; strengthen the security of nuclear
weapons and materials at more than 100 sites; and purchase more than
sixty tons of highly enriched uranium that could have been used by
terrorists or outlaw states to build nuclear weapons. A number of
these accomplishments are directly attributable to the work of our
binational commission with Russia, chaired on our side by
Vice-President Gore.

Despite these steps, the job of preventing "loose nukes" is far from
complete. That is why the overwhelming majority of our assistance
dollars to Russia go to programs that lower the chance that weapons of
mass destruction or sensitive missile technology will fall into the
wrong hands.

And it is why President Clinton announced in January the Expanded
Threat Reduction Initiative. This includes measures to help Russia
tighten export controls, improve security over its arsenal, and
provide opportunities for more than 30,000 former Soviet weapons
scientists to participate in peaceful commercial and research
ventures.

We are also seeking Russia's cooperation in responding to the
potential new dangers posed by long-range missiles. For decades, we
viewed this threat primarily through a narrow Cold War lens. But the
spread of ballistic missile technology to a number of potentially
hostile states has broadened our concerns.

We have pressed Russia to use its new laws and export controls to
curtail the flow of missile technologies to countries such as Iran.
This was discussed at length in the meeting last Sunday between
President Clinton and Prime Minister Putin.

As these discussions and North Korea's decision to suspend missile
flight tests indicates, we are doing all we can diplomatically to
defuse regional rivalries and prevent destabilizing developments. And
we maintain what is by far the world's most powerful military
deterrent.

But we are also developing theater missile defense systems to protect
our territory, troops, friends, and allies. And we are developing and
testing a National Missile Defense system, with a decision on
deployment of a limited system possible as early as next summer.

Already, the President has made some decisions on the changes to the
Anti-Ballistic Missile Treaty that would be necessary were we to
decide to go forward with deployment. And we have begun discussions
with Congress, our Allies and Moscow on these issues.

To the Russians, we have emphasized that these changes would be
consistent with the underlying purposes of the Treaty, which we value
deeply, and which are to maintain stability and enable further
reductions in strategic nuclear arms.

We have made it clear that we are willing to cooperate with Russia on
strategic defense. We have no intention of undermining Russia's
nuclear deterrent, and our proposal would not do that. Moreover, we
are suggesting substantial further reductions in U.S. and Russian
nuclear arsenals. This is a step Moscow welcomes, in part because of
the high cost of maintaining nuclear weapons. In short, we seek an
agreement that will give us the early protection we need to safeguard
our security, without undermining Russia's.

We recognize, of course, that our proposal may be seen by Moscow as
asking too much, and by some of our domestic critics as demanding too
little.

Our response to Russian officials is that not only we, but they, are
potentially vulnerable to these new threats. And that, in any case,
they cannot have it both ways. They cannot fail to crack down
effectively on the transfer of advanced technologies, and then express
surprise when we insist on protecting ourselves against threats fueled
by those transfers.

Our message to our own citizens is that the best way to protect our
security is to provide for our defense, while still preserving
strategic nuclear cooperation with Moscow. We will not be safer, if in
responding to new threats, we revive old ones.

Throughout this decade, we have tried to work with Russia, our allies
and partners, to build a Europe that is secure, stable, and free from
the divisions that have endangered our own security on numerous
occasions during this century.

It remains premature to say what kind of long-term relationship Russia
will have with its neighbors, but the progress made during the past
decade has been astonishing.

If one of the scholars in this room had predicted in 1990 that, by
century's end, there would be no Russian forces in the Baltics or
Central Europe; that Russia would have established a formal
partnership with NATO and the EU; and that Russian troops would be
serving side-by-side with Americans in Bosnia and Kosovo -- I suspect
that Carnegie would have politely forwarded the resume of that
far-sighted scholar -- to Brookings.

As this audience is well aware, progress with Russia in Europe has not
occurred easily or by accident. Russia had differences with us in
Bosnia, opposed NATO expansion, and denounced the allied air campaign
over Kosovo.

At the same time, we continue to press Russia to join in supporting
effective UN Security Council action towards Iraq, and to recognize
that Serbia cannot end its isolation as long as Slobodan Milosevic is
in power.

Such disagreements have led to predictions that the spirit of
pragmatic cooperation between Russia and the West will crash and burn.
At some point, the pessimists may be proven right. But the
relationship has survived headwinds, turbulence, and even a midair
turnaround -- and is still aloft.

The reason has little to do with sentiment and much to do with common
sense. Although many still refuse to admit it, the zero-sum world of
the Cold War is truly gone. Future progress will depend not on
dominating others, but on forging partnerships aimed at shared
security and economic growth. The greatest opportunities will reside
in a healthy global economy fueled by openness and expanded trade. And
the most serious threats will be posed by proliferation, regional
strife and--as we have been reminded these past two weeks--terror.

In recent days, powerful explosions have claimed the lives of more
than 200 civilians, many of them children, in and around Moscow.
President Clinton has made clear the shock and anger of the American
people at these callous and cowardly acts of murder. Our prayers are
with the victims and their loved ones.

We welcome statements by Russian leaders that the explosions do not
justify acts of bigotry against any nationality. And we strongly
support their efforts to bring the perpetrators to justice by
constitutional means. As I told Foreign Minister Ivanov this past
week, in the battle against terror, the United States and Russia stand
side by side.

The second overriding objective in our policy towards Russia is to
encourage its full transition to political democracy, a healthy market
economy and the rule of law. This reinforces our security goals
because a stable and democratic Russia is more likely to be a good
partner on arms control and questions of international security and
peace.

But as we know from our own experience, building democracy is hard. It
is especially tough when you are emerging from a long history of
totalitarian rule. The Poles said of the post Cold War challenge in
their own country, "The Communists showed us how to turn an aquarium
into fish soup. Now, we have to figure out how to turn the soup back
into an aquarium."

Unlike Poland, Russia does not have the advantage of a democratic
model from the past. This has made it harder for the Russian people to
recognize and unite around shared goals.

But if anything unites Russians it is the desire to see their country
respected. This is wholly legitimate, given Russia's history and
achievements. The question Russians must deal with is how to define
their country's greatness anew in the 21st Century.

Certainly, success cannot come through a return to some version of the
failed systems of the past. It cannot come at the expense of Russia's
neighbors or through isolation or hibernation. It can only come
through Russia's ability, over a period of years, to build a vibrant
democratic society at home and play an honored role in world affairs.

Fortunately, democratic habits are among the world's most benign
addictions, and are starting to spread in Russia.

It is easy to forget that a decade ago, the Communist party was still
the only one allowed by the Constitution. Today, there is a whole lot
of democracy going on.

Russians enjoy greater liberties than at any time in history. The
press is outspoken and varied. Civil society is expanding rapidly. And
Russians have grown accustomed to voting regularly and speaking their
minds freely.

In December, critical parliamentary elections are scheduled. And
Russia's first ever democratic transfer of power is anticipated as a
result of the Presidential election next summer.

America's role will be to support the democratic principles that
underlie the elections. USAID will continue its work with NGOs to help
provide the infrastructure for elections that are free and fair. We
want the will of the Russian people to be expressed. Because nothing
could do more damage to Russia, at home or abroad, than a failure to
observe the constitutional process. And nothing could do more to
cement Russia's place among the world's democracies than the
constitutional election and inauguration of Boris Yeltsin's successor.

Unfortunately, the new Russian government will inherit some old
problems.

The worst fears of a year ago have been avoided, but the Russian
people are still suffering great hardships. Many are poor. Wages are
low. Pensions are often delayed. Health care is scarce. Democratic
institutions are fragile. And there is about as much public faith in
the banking system as there is in the legal system -- which is to say
almost none.

It is true that devaluation of the ruble has raised the price of
imports and thereby revived production for the home market in some
sectors. But the seeds of long-term growth have hardly taken root. And
the deadweight of corruption is holding Russia back.

Although some have suggested that the problem of corruption originated
with the post Cold War democratic reforms, that is not the case.
Corruption flourished under the Czars and thrived under the Soviets,
but as a state monopoly. The problem now is that Russia has gone from
a system with too many bad rules to one with not enough good rules.
And without the rule of law firmly in place, foreign investors have
hesitated, capital has taken flight, the influential few have
distorted markets, and the economy has sagged.

For years, America has tried to help Russia move towards a higher
road. In 1993, USAID launched a rule of law project to draft a new
civil code, a criminal code, bankruptcy laws, and a legal and
regulatory framework that allows Russia's Securities and Exchange
Commission to function.

In 1995, President Clinton, in Moscow, called for "a market based on
law, not lawlessness."

In 1996, Strobe Talbott told the U.S.-Russia Business Council that
"President Yeltsin and Prime Minister Chernomyrdin must bring under
control the epidemic of crime and corruption."

In 1997, Vice-President Gore took the lead in pressing Russia to enact
money laundering and anti-crime legislation.

The same year, Deputy Treasury Secretary Larry Summers declared "we
must recognize that a successful campaign against crime and corruption
[in Russia] must begin at the top."

And in a speech last year, I stressed that foreign funds "should be
used to help the neediest Russians, not enrich foreign bank accounts."

Unfortunately, the response from Russian authorities has not been
adequate. President Yeltsin's government needs -- at last -- to make
fighting corruption a priority. The Russian legal system remains no
match for well-connected criminals. And the tentacles of Russian
organized crime have spread far beyond the nation's borders.

Some Russians attribute the furor over corruption to a desire by the
West to embarrass Moscow, or to electoral politics here in the United
States. These are fantasies. The problem is real and must be taken
seriously. Our message to Russian leaders has been to get tough on
corruption and to cooperate, in full, with investigations into it,
including money laundering and the use of IMF funds, no matter where
or to whom the evidence leads.

We are encouraged that Prime Minister Putin sent a high-level team to
the United States this week to discuss issues involved in the current
controversy. We also acknowledge that the problem of corruption is by
no means limited to Russia. On the contrary, it is a plague present to
one degree or another in every nation, and those trying to move from a
closed system to democracy are especially vulnerable. But that does
not reduce the harm it causes to Russia's reputation and economy, nor
diminish the need for effective action.

In days to come, we will need to work even more vigorously with those
in Russia who want to create the "good rules" their society needs.
This includes enacting anti-crime and money laundering legislation. It
includes financial sector reforms that stress transparency and
accountability. It includes judicial training and advice on fair and
efficient tax collection. It includes developing and enforcing
standards to prevent conflicts of interest in government. And it
includes helping small and medium-sized businesses to escape the
shadow of the monopolies, and become a driving force in Russia's
economy.

But we also need to keep our heads about us. It is right to focus on
the cloud of corruption in Russia, as we have been doing for some
time. But it is not the whole picture.

Today, in Russia, unlike the past, allegations of corruption,
incompetence and other shortcomings are lodged against even the
highest levels openly and often. The press and public can investigate,
criticize and question. This fall, in regions of Russia most notorious
for corruption, political leaders face challengers who have made clean
government their rallying cry.

This seems normal to us; but in Russia, it is revolutionary. And when
coupled with the growing emergence of the post-Soviet generation; and
Russia's ongoing search for a new and honored national identity, as
evidenced by their pride in observing this year the 200th anniversary
of Pushkin's birth; it holds the promise of positive change. These are
reasons to increase our efforts with Russia, not--as some suggest--to
cut our aid and walk away.

Obviously, we should not send good money after bad policy, but neither
should we turn our backs on good people doing the right things. And
that is precisely who and what our aid programs are designed to
support.

Unfortunately, Congress is proposing a 25-30% cut in the amount
President Clinton has requested for programs in Russia and elsewhere
in the New Independent States next year. This would require
unacceptable and self-defeating tradeoffs. And it ignores the fact
that our programs directly serve important American interests and
values.

We have made clear that we will not support further multilateral
assistance to Russia unless fully adequate safeguards are in place.
And we have always kept a close eye on our bilateral aid.

As I noted earlier, most of this bilateral assistance supports
nonproliferation. This is critical because each nuclear warhead safely
dismantled; each ton of highly-enriched uranium that is secured; each
nuclear scientist that is put to work on a civilian project makes our
world a little less dangerous.

The remainder of our programs are designed primarily to strengthen
democracy at the grassroots -- where Russia's future direction will be
determined.

Examples include our exchanges that have enabled 35,000 Russian
leaders of tomorrow to witness first hand the workings of America's
free market democracy.

More than a quarter million Russian entrepreneurs have benefited from
our training, consulting or small loans.

We have helped develop independent Russian media, which now include
more than 300 regional television stations.

We have aided independent trade unions in seeking to establish their
legal rights.

And USAID has worked directly with more than 15 percent of the 65,000
NGOs that have begun operating in Russia this decade.

Some might say that our modest programs cannot affect much in a nation
as large as Russia. I would say that a small difference has the
potential to make all the difference when the cause is just and the
time is right.

Earlier this year, I had the chance to meet with representatives of
civil society in Moscow. I found among them a fierce commitment to
democracy, free press, religious tolerance and the rights of women.
They also expressed deep appreciation for the assistance we have
provided.

These champions of human rights are not ready to quit on Russia, and
we should not quit on them.

I told them that the American people know it is in our interests for
Russia to succeed. And that we want to see a Russia with legal
structures that ensure due process for everyone, including dedicated
activists such as Alexander Nikitin. We want to see a Russia where
bigotry is shunned and anti-Semitism everywhere condemned. We want to
see a Russia as renowned for its freedom as for its culture, music,
literature and the bravery of its people.

I know what the cynics may say, but I believe the ongoing surge in
nongovernmental organizations in Russia is a big deal. As Sergei
Kovalyov, the eminent human rights advocate has said, "the quality of
democracy depends on the quality of democrats. We have to wait for a
critical mass of people with democratic principles to accumulate. It's
like a nuclear explosion: the critical mass has to accrue."

No one can predict when, or if, that day will come. Certainly, it will
not come immediately. Probably, it will not come suddenly, but rather
in fits and starts. But it most assuredly will not come at all if we,
who championed liberty through five decades of Cold War, desert
liberty's cause in Russia now.

I say to you and to my friends on Capitol Hill that we are proud of
our efforts to help equip Russians with the tools they need to build
the kind of future that will be best for them, and for us. We will
fight for our assistance programs, and we are confident that we will
have in the future as we have had in the past, strong bipartisan
support.

In recent years, Russia has moved from one critical point to another:
the confrontation with Parliament; the war in Chechnya; the rise of
extreme nationalists; the resurgence of hard-line communists; the
financial crisis; the disagreement over Kosovo; and now investigations
into money laundering and corruption.

Each time, the chorus has arisen to pronounce the death of the new
Russia. Each time, the Russian people have refused to attend the
funeral.

Tolstoi wrote once that "the strongest of all warriors are these two
-- Time and Patience."

These are not qualities Americans have in abundance, but they are
needed now in our approach to Russia.

It is beyond our prerogative and our power to determine Russia's
future. But we can shape our own policy. We can be hostile and
dismissive towards Russia and risk re-creating our enemy. Or we can
explore with vision and persistence the full possibilities of this new
era.

In choosing the latter course, we will continue to encourage Russia's
integration with the West. We will fulfill our joint responsibility
with Russia to safeguard the world from nuclear war. We will help
Russia to find its place in a new Europe without walls, wholly at
peace and fully free. And we will extend our hand to the Russian
people as they strive -- after 1000 years of history -- to consolidate
the institutions of freedom in their great land.

That is work worthy of the spiritual descendants of Andrew Carnegie
and this Endowment.

And it is a task I hope everyone in this room, and our citizens across
the country, will continue to support.

Thank you very much.

******

#8
Putin Orders to Mount Anti-Terrorist Security in Russia.

MOSCOW, September 17 (Itar-Tass) - Russian Prime Minister Vladimir Putin 
signed a resolution on Thursday to mount anti-terrorist security in the 
country in connection with the recdent terrorist acts. 

Federal authorities were given three days to draft and approve measures for 
the protection of nuclear, transportation, communication, energy-generating 
facilities. 

Local authorities were recommended to set up provisional headquarters to 
protect civilian population. Security is to be enhanced in residential areas, 
educational and health establishments, sport and culture facilities. 

Funds are to be allocated to increase technical capabilities of police for 
detecting explosives. 

Putin gave a month to authorities to check and register explosives in all 
industrial organizations. 

Police was ordered to expose terrorist groups and their international links 
and to "bar members of foreign terrorist organizations from penetrating into 
Russia". Most attention is to be paid to the so-called "ethnic criminal 
groups" engaged in arms trade. 

The work is to be cordinated by Interior Minister Vladimir Rushailo. 

*******