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Johnson's Russia List


September 17, 1999   
This Date's Issues: 3505 3506  

Johnson's Russia List
17 September 1999

[Note from David Johnson:
1. Reuters: Russian Upper House Backs PM's Security Stance.
2. Itar-Tass: Lebed Believes Probability of Duma Elections Is Waning.
3. The Nation editorial: Robbing Russia.
4. Washington Post: Matthew Brzezinski, Where Russia Learned Go-Go.
5. AFP: Russia faces new headache in the Caucasus. (Karacheyevo-Cherkessia)
6. Congressional Record: Rep. Curt Weldon on ESTABLISHING A NEW FRAMEWORK 

7. The Nation: Matt Bivens, LAUNDERING YELTSIN. How US Hypocrisy Feeds 
Russian Corruption.]


Russian Upper House Backs PM's Security Stance
September 17, 1999
By Gareth Jones

MOSCOW (Reuters) - Russia's upper house of parliament applauded Prime
Minister Vladimir Putin's security crackdown Friday following a string of
bomb blasts which have killed nearly 300 people and shocked the nation.

But the generally loyal regional governors who make up the Federation
Council also sent a warning to President Boris Yeltsin by voting less than
convincingly against deciding to debate a call for the embattled Kremlin
chief to quit.

The bombs, and their political ramifications, also preoccupied investors.
Top Russian shares fell by as much as 11 percent, partly fuelled by rumors
that Yeltsin was set to fire Putin, in office barely a month, over the crisis.

Former paratroop general Alexander Lebed, now governor of Siberia's
Krasnoyarsk region, said the bomb blasts had stretched people's faith in
the authorities to breaking point.

``Today people feel growing fear and bitterness toward the authorities for
failing to protect them,'' Itar-Tass news agency quoted him as saying.
``This is an explosive combination.''

One of the myriad rumors floating around Moscow has Yeltsin appointing
Lebed to replace Putin.

The Federation Council, meeting in closed session, endorsed Putin's
approach to fighting terrorism, governors said.


The latest blast hit Russia's second city, St Petersburg, late Thursday,
killing two people and injuring four.

But police said they did not believe it was linked to the more powerful
explosions over the past two weeks in Moscow and the southern towns of
Volgodonsk and Buynaksk. Criminal underworld attacks are relatively common
in Russia.

No one has formally claimed responsibility for any of the blasts, but
officials have blamed Chechen warlords fighting Russian rule in the North
Caucasus region of Dagestan.

The Chechen leadership, which has little influence over the warlords, has
denied involvement in the attacks. So has Shamil Basayev, head of the
separatist fighters in Dagestan.

The Federation Council endorsed Putin's decision effectively to seal
Chechnya's borders with the rest of Russia.

Governors quoted Putin as telling the chamber he believed the Khasavyurt
accords which ended Russia's two-year war with the Chechen rebels in August
1996 were ``a mistake.'' He also reiterated Moscow's view that Chechnya is
still part of Russia.

The accords deferred a decision on Chechnya's status to the end of 2001.
They were signed by Lebed, then a Kremlin envoy, and Aslan Maskhadov, now
president of the breakaway region.

Putin also said there was no question of Russia repeating its ill-fated
invasion of Chechnya and he repeated his opposition to declaring a state of
emergency in Russia.

The government has already stepped up street patrols in Russian cities,
document checks and house-to-house inspections as well as unspecified
covert operations by special services.


Kremlin spokesman Dmitry Yakushkin said Putin was expected to speak later
by telephone with Yeltsin, who is spending the day at his Gorky-9 residence
outside Moscow.

``Boris Yeltsin believes all branches of power must show a united front in
the struggle,'' Yakushkin said.

But Yeltsin, weakened by poor health, by Russia's economic woes and by
Western allegations of corruption in his entourage, has never looked more
politically isolated or distrusted.

At least one newspaper has even mooted Russia's security forces might be
behind the recent blasts, saying they are part of a plan to force a state
of emergency and cancel parliamentary and presidential elections due over
the next 12 months.

The Kremlin and FSB domestic security agency have denied the speculation
about an official link in the blasts.

Council speaker Yegor Stroyev, a long-time Yeltsin loyalist, caused a stir
Thursday with an interview in the New York Times which quoted him as saying
the president should step down.

Friday Yakushkin told Reuters Yeltsin believed Stroyev's reported remarks
were a ``misunderstanding.'' Stroyev himself has said he was misquoted but
stopped short of a full denial.

In another worrying sign for Yeltsin, some members of the Council drew up a
declaration which urges him to stand down.

``The result of your economic and political policies has been the collapse
of the country's economy, a sharp decline in its ability to defend itself,
a fall in living standards and an increase in inter-ethnic tensions,'' the
declaration said.

It was backed by 60 of the senators, 30 less than needed for it to be
discussed in the chamber. 


Lebed Believes Probability of Duma Elections Is Waning.

KRASNOYARSK, September 17 (Itar-Tass) - Krasnoyarsk territorial governor
Alexander Lebed believes that "the probability of elections to Russia's
State Duma (lower house of parliament) is waning with every day". Lebed
stated this at a news conference in Krasnoyarsk on Friday. 

He said there had been explosions in Moscow, and then in St.Petersburg and
Volgodonsk, and people's confidence in the authorities is waning. Even
earlier people "had no trust for the authorities that deceived them". But
now "fear and annoyance with the authorities that failed to protect them
are getting hold of people's minds. "And this is a highly explosive
mixture," the governor said. 


The Nation
October 4, 1999
Robbing Russia 

Finally, the rampant corruption at the core of Russia's post-Communist 
transformation is front-page news. On August 19 the New York Times reported 
that up to $10 billion in tainted Russian money may have been laundered 
through the Bank of New York since early 1998. It's odd to see a story long 
reported in The Nation treated like breaking news. Maybe prestigious news 
outlets have been too busy defending Boris Yeltsin to notice Western 
complicity in Russian corruption until now.

It's important that this not be turned into a mere police story, though the 
mainstream press seems to want it that way. A Times headline intended to 
clarify when it said, "Russian Gangsters Exploit Capitalism to Increase 
Profits," but it blurred the point that the real crime was the looting of the 
Russian state--beginning in 1991, to the point where it could not pay federal 
employees or pensions, enforce its laws or conduct an economic policy that 
would benefit citizens--and the wholesale giveaway ("privatization") of 
Russia's most valuable assets to a group of oligarchs linked with the liberal 
"reformers" Washington championed. The moral crime is that these policies 
have impoverished millions of Russians.

That didn't have to happen. The new Russian capitalists, or, as they are 
called in Moscow, "corruptionalists," have made no real investment in 
production or the country's infrastructure. Quite the contrary--what the US 
establishment calls the "transition" has been the greatest episode of 
asset-stripping in history, abetted and cheered on by the US Treasury, elite 
academic economists, the World Bank and the International Monetary Fund.

Capital flight in the Yeltsin years is estimated at about $150 billion. (The 
Economist, eager to preserve the essential distinctions, editorialized in 
favor of distinguishing capital flight, which isn't a crime, from money 
laundering, which is.) Not only is $150 billion more than the Latin American 
flight of the eighties--and about the size of Russia's entire foreign debt, 
which it can't service--but it's gone on far longer. In fact, it's probably 
wrong to think of it as capital flight (short-term outflow of panicked 
capital into secure instruments like US Treasury bonds); think of it rather 
as a chronic hemorrhaging of Russia's natural resources. That could hardly 
have occurred without the knowledge and complicity of Western governments, 
central banks and finance houses. And as Stephen Cohen has warned repeatedly 
since 1992 in these pages, it has contributed to one of the greatest 
peacetime economic and social disasters in history.

There aren't many precedents for Russia's collapse (or that of some of the 
other former Soviet republics, which have done even worse). Some 70 percent 
of Russians now live below or just above the poverty level, and capital 
investment (the source of future prosperity) is only 10 percent of what it 
was a decade ago. In addition, basic social statistics reveal a "catastrophe 
of historic proportions," as Nicholas Eberstadt documented in the Heritage 
Foundation's Policy Review, a venue that's not likely to wax nostalgic for 
the USSR. Eberstadt, extrapolating from World Health Organization estimates, 
argues that more than 3 million "excess deaths"--people who died who wouldn't 
have, according to old demographic patterns--occurred between 1992 and 1998. 
With deaths exceeding births, the population is shrinking annually, something 
rarely seen unless there is war or famine.

Jim Leach, whose House banking committee will soon hold hearings on the bank 
scandal, said that the question at the heart of the affair is whether the 
Bank of New York officials were "unwittingly duped or were willing 
facilitators in what may be the greatest example of kleptocratic governance 
in modern history." He's right, as far as he goes; whatever the particular 
situation of the Bank of New York, those responsible for facilitating the 
kleptocratic governance of the past decade include senior government 
officials and financial houses from the sleaziest to the snazziest.

With their power of subpoena, Leach and his committee could expose a lot of 
closeted skeletons: which Western banks helped which Russian kleptocrats 
spirit money away and where they hid it, which US economists got paid how 
much for sanctifying the process, and what the Clinton Administration and the 
IMF knew and when they knew it. Since such investigations would prove 
embarrassing to some very important people, they probably won't happen. But 
the least we could do for ordinary Russians, who have been plundered and 
impoverished, is to help them try to get some of their money back through a 
concerted Western effort to locate and repatriate the enormous wealth stashed 
abroad during the years of "reform."


Washington Post
Where Russia Learned Go-Go
By Matthew Brzezinski
The writer was a Wall Street Journal correspondent in Russia and Eastern 

Suddenly it seems great sport to beat up on poor old Russia. Surprise, 
surprise, the country is corrupt. Rule of law does not exist. The place is a 
den of thieves.

Where were Russia's myriad critics two years ago, when it snowed money in 
Moscow? You'd be surprised how many were snuggled up at the bar of the 
Radisson Slavyanskaya Hotel, surrounded by attentive and leggy blondes and 
comforted by the bloated bonuses virtually every Westerner then earned in 

Where were the Republicans -- so cross these electioneering days at Al Gore 
over the looting of Russia -- when former president George Bush cooed at the 
country's progress and prospects during the June 1998 unveiling of Wall 
Street giant Goldman Sachs's Moscow office?

There was a strange silence during the bubble years, when Russia's 
foreign-dominated stock market outperformed any other on earth. Nor did one 
hear a lot of indignant grumbling about corruption when big Russia players 
such as Credit Suisse First Boston tripled their early investments in the 
market for Russian treasury bills, known as GKOs.

What, then, is the big difference between Russia today and the Russia of the 
high-flying years of 1996-98? Has the level of graft increased so 
dramatically since the bubble burst last year? Or did a lot of U.S. investors 
accustomed to easy gains simply lose their shirts and start crying foul?

"When times were good, very few people asked pointed questions about Russia," 
said Charles Blitzer, a former World Bank representative in Moscow, who -- 
when we spoke on the eve of the Aug. 17 crash last year -- headed U.S. 
investment bank Donaldson Lufkin & Jenrette's Russian research department in 
London. "But when things started going wrong, the answers suddenly scared the 
hell out of everyone."

More than 100,000 foreigners streamed into Moscow during the mid-'90s, with 
American investors leading the charge to cash in on the Russian bonanza. My 
wife was the vice president of one of those pioneering outfits, a New 
York-based hedge fund that had gambled $10 million in Russia in 1992 and by 
early 1998 had holdings worth more than $3 billion. We lived in a luxury 
apartment filled with antiques looted by the Red Army in Austria in 1945. The 
rent ran more than my journalist salary but was modest compared with the 
$20,000 some American bankers paid monthly for their Moscow digs.

Back then, Moscow's expatriates were shockingly unsympathetic when Radisson 
Hotel promoter Paul Tatum was shot to death in 1996, amid an ownership 
dispute with the powerful mayor of Moscow. The unfortunate entrepreneur, so 
the reasoning went, had brought trouble on himself by violating one of the 
fundamental unwritten rules of doing business in Russia: He had complained 
loudly about corruption.

According to Peter Charow, at the time head of the American Chamber of 
Commerce in Moscow, this code of silence was only one of the many local 
guidelines Westerners strictly followed to stay safe and get rich.

Nothing has changed in Russia since Paul Tatum's brutal death, with the 
expection, perhaps, that Americans are no longer making money there -- and 
are thus free to be belatedly sanctimonious. So since we all seem to be in 
such a finger-pointing mood this early in the election season, let's add one 
other, largely unacknowledged, group that also must bear direct 
responsibility for Russia's sorry state of affairs: Wall Street.

As the money-laundering scandal currently unfolding around Russian-controlled 
accounts at the Bank of New York sadly shows, it takes a certain blind faith 
not to notice anything suspicious about a company with a residential 
corporate address making 10,000 laptop-generated transactions worth well over 
$4 billion.

American investors were among the first buyers of Russia's much-maligned 
privatization certificates, often traveling to the deep provinces, where 
workers parted with their shares in exchange for a bottle of vodka. American 
and British bankers, including financier George Soros, did deals with the 
so-called oligarchs.

Prominent U.S. investment advisers packaged most of the Russian bond 
offerings that today are worth five cents on the dollar. Those same banks 
binged on billions of dollars of dubious GKO debt, betting there was no way 
the International Monetary Fund would allow Russia to go down the tubes.

American stockbrokers wrote the book on Russia's supposed industrial 
recovery, publishing such rosy analyst reports that U.S. and British fund 
managers went to ingenious lengths to buy restricted shares of murky 
companies such as RAO Gazprom. American accounting firms also did their bit 
for the Russian economic miracle, creating fanciful financial statements out 
of what at times seemed thin air. But the fat fees now-bankrupt Russian 
concerns such as Menatep and Sidanko paid for the window dressing were very 

So where did mobsters and corrupt Russian officials learn about the intricate 
art of money laundering? And who introduced Russian businessmen to the joys 
of such offshore tax havens as Cyprus?

If Russians have perfected their financial sleight-of-hand wizardry over the 
past few years, it is because they had some cynical and well-compensated 
accomplices right here in America.


Russia faces new headache in the Caucasus

MOSCOW, Sept 16 (AFP) - Russia faced a new headache in the Caucasus Thursday 
when the Cherkess minority said it was splitting from a rival ethnic group to 
join with a neighboring region.

Deputies representing the Cherkess minority in the troubled southern republic 
of Karacheyevo-Cherkessia voted to become an autonomous district that would 
be part of the Stavropol region of southern Russia, deputy Boris Akbashev 
told AFP by telephone.

The move turned up the heat in the already simmering Caucasus where Russian 
forces are trying to keep a lid on Islamist militants in Dagestan and 
Chechnya, two republics which may also be linked to a wave of terrorist 
bombings sweeping the country.

The decision followed months of ethnic tensions in Karacheyevo-Cherkessia -- 
a republic which borders Georgia and the Russian republic of 
Kabardino-Balkariya -- over the results of the May 16 presidential election 
won by an ethnic Karachai.

On Tuesday, president-elect Vladimir Semyonov took the oath of office despite 
ongoing claims by rival Stanislav Derev, an ethnic Cherkess, that the May 16 
election was rigged.

"We do not recognize him as the head of the republic," said Murat Khatukayev, 
one of the delegates, quoted by Interfax.

It was unclear whether the declaration adopted by the Congress of Cherkess 
deputies in Cherkessk had any legal weight.

Representatives of Abazins -- the fourth ethnic group in the republic after 
Russians, Karachai and Cherkess -- joined in the vote held by some 900 

Cherkessia was an autonomous region within the Russian federation from 1928 
to 1957, under the previous Soviet regime.

A Cherkess delegation was to travel to Moscow Friday to discuss the plan to 
re-draw boundaries in the region already wracked by instability in Chechnya, 
which won de facto independence in the 1994-1996 war, and Dagestan.

Russian forces waged a five-week campaign to root out Moslem militants from 
Dagestan who were seeking to recreate a 19th century Islamic state 
encompassing Chechnya and Dagestan.

Like its neighboring republic's in the mountainous region, 
Karacheyevo-Cherkessia is plagued with unemployment hovering at around 80 
percent, and poverty and crime.

After weeks of rallies last month, following a court decision to uphold the 
results of the presidential vote, Moscow stepped in to try to mediate a 
settlement but talks in the Russian capital ended inconclusively.

Thousands of people showed up for daily rallies in Cherkess, the capital of 
the republic, which at times turned violent.

One person was killed and several injured when shooting broke out between 
rival groups supporting Semyonov and Derev.

In neighboring Stavropol, the governor indicated he was not opposed to 
re-drawing the regional map if it was considered by all as legal.

"The people's right to self-determination is unshakeable but we must all act 
within the law, on the basis of the constitution of the Russian federation," 
ITAR-TASS quoted the governor of the Stavropol region, Alexander Chernogorov, 
as saying.

Karacheyevo-Cherkessia, a republic of about 400,000 inhabitants, is comprised 
of ethnic Russians who make up 42 percent of the population, Karachai (32 
percent), Cherkess (10 percent), Abazins (seven percent) and Nogays (three 


Congressional Record
September 15, 1999
Rep. Curt Weldon (Republican-Pennsylvania)

I am asking this Congress to consider a 
new dialogue with Russia where we in the Congress, the Senate and the House, 
the Duma and the Federation Council come together and we take control of this 
relationship in setting out some basic parameters, not in dictating when and 
where money should be used, but laying out parameters like the ones that I 
negotiated and discussed with my Russian friends as the chairman of the Duma 
Congress initiative with the gentleman from Maryland (Mr. Hoyer) and passed 
this in both bodies and tell whatever President wins election next year these 
are the parameters for our relationship with Russia in the future. 

Mr. Speaker, I also developed what I call a new vision for Russia, a series 
of principles of how we can assist Russia in getting through these difficult 
times. I would also ask to insert in the Record at this time my new vision 
for Russia: 


Working with my colleagues in the Duma, I have developed a joint statement of 
principles governing Western and IFI assistance to Russia. For too long, the 
United States has poured money into Russia without proper control or 
oversight. As a result, this money has lined the pockets of the wealthy, 
while average Russians have seen no improvement in their standards of living. 
Therefore, I am working on a bold new agenda so that this money will be made 
available to reform-minded regional governments. In order for financial 
assistance to make an effect on the lives of the Russian people, we must 
ensure that the system is reformed before the money is invested.


An original supporter of the Nunn-Lugar Cooperative Threat Reduction (CTR) 
program, I have worked tirelessly against proposed funding reductions in that 
effort--working to defeat amendments that would cut CTR funds and related 
amendments which would withhold CTR funds pending official reports and action 
from the Russian government. I was also instrumental in extending Nunn-Lugar 
assistance beyond dismantlement support to assisting former Soviet states 
with better protection of their nuclear assets, as well as establishing 
better systems of control and accountability.


In 1996, I created the Duma-Congress Study Group, an on-going parliamentary 
exchange between the U.S. Congress and the Russian Duma. The goal of the 
Study Group is to foster closer relations between our two legislatures so 
that we can help address key bilateral issues, across a wide range of 
substantive issues. The future of Russian's democracy is dependent on the 
strength of the Duma, and I hope that these continuing discussions on 
substantive issues will provide a basis upon which to continue building. I 
have also initiated a similar exchange program for staff members of the U.S. 
Congress and the Russian Duma in an effort to establish a personal and direct 
communication link for the staff support of our two countries' legislatures.


A successful mortgage finance system will reduce unemployment, increase 
democratization, strengthen the banking system, create wealth for Russian 
families, encourage commercial reforms, and increase the housing stock. With 
mutual support between the Russian Duma and the United States Congress, I 
believe that these goals can be achieved. I remain committed to the 
establishment of a mortgage finance system, and I will continue to pursue 
legislation in this area in the U.S. Congress.


In 1992, recognizing that energy was the key to transforming the former 
Soviet republics, and that energy cooperation between the United States and 
the FSU could infuse much-needed hard currency into the three 
energy-producing republics of the former Soviet Union, I formed the United 
States-Former Soviet Union Energy Caucus. The group, composed of U.S. 
legislators, works with U.S. oil companies and Russian Duma and government 
counterparts to enable energy development projects in oil and gas-rich 
Russia. Development benefits Russians by ensuring economic development in 
their country and providing them with sorely-needed cash, and U.S. energy 
companies and the American people with new sources to meet our continuing 
energy needs.


In January of 1998, I was the U.S. representative to Speaker Seleznev's 
conference on Russian Economic Development. I have also been working actively 
in my home state of Pennsylvania to encourage U.S. companies to invest in 
Russia. My work in this arena has included the creation of the 
Pennsylvania-Russia Business Council which has, with my assistance, conducted 
five successful workshops on U.S. investment in Russia.


Education is the key to the future. In order for Russia's democracy to 
succeed, a new generation of Russians must be educated in the tenets of 
freedom. I am currently advocating a program which would enroll 15,000 
Russian students in American colleges and universities. Following their 
graduation from these programs, these students would be required to return to 
Russia and become part of a qualified corps of future leaders and specialists.


Healthcare is rapidly becoming a global service. In Greater Philadelphia, the 
region which I represent, I am currently supporting an effort in which the 
hospitals have agreed to work cooperatively on a new initiative to jointly 
provide healthcare services for international patients. I am also working on 
a proposal to bring modular hospitals to Russia. These two unique efforts 
will provide increased access to quality healthcare for the Russian people.


As Chairman of the House Military Research and Development Subcommittee, I 
have played a lead role in sustaining and expanding U.S.-Russian cooperative 
technology development programs. Not only have I worked to ensure funding for 
early warning sharing programs like RAMOS and APEX, but I established a 
separate line item in the missile defense budget specifically for cooperative 
work in this field. This year, the Clinton Administration has canceled the 
RAMOS program, suggesting that alternative cooperative projects be pursued. 
Recognizing the critical role of this program in establishing cooperative 
links on early warning sharing and in enabling pursuit of mutual defenses, I 
will lead the fight this year to preserve the RAMOS effort.


In an effort to sustain the work of Russian scientists and prevent 
proliferation of critical technologies, I have asked Academician Velikhov of 
the Kurchatov Institute to develop a proposal that would enable Russian 
scientists and engineers who developed missile technology comparable to that 
which was transferred to Iran for application in its Shabab-3 to work with 
the Ballistic Missile Defense Organization in identifying those technologies 
transferred to Iran and in helping the U.S. counter that technology. In 
addition, I am supporting other proposals that would ensure continued U.S. 
support for underemployed Russian scientists and engineers.


I have been a leader in the U.S. Congress in raising awareness regarding the 
need to confront and cooperatively address the issue of radioactive waste 
dumping in the Arctic Ocean. I held hearings on this matter, and called 
Alexei Yablokov to testify on the findings of the Bellona Foundation, which 
documented volumes of evidence on Russian nuclear dumping which was 
previously unconfirmed. I have since worked to fund Navy research on this 
issue and worked through Global Legislators for a Balanced Environment 
(GLOBE) to encourage continued attention to and research on this problem. I 
have also supported U.S.-Russia collaboration on nuclear waste identification 
and cleanup work, holding several hearings on U.S. and Russian waste problems 
and potential cooperative projects, and securing funding through the Arctic 
Military Environmental Cooperation program in 1999 for sponsorship of a 
conference in Russia to address this issue.

And finally, Mr. Speaker, I would say that in dealing with Russia it is very 
simple, and you know I think Ronald Reagan had it right. Remember when Ronald 
Reagan called the Soviet Union `Evil Empire"? Well, you know something, Mr. 
Speaker? The 95 percent of the Russians who were not members of the Communist 
Party heard him and agreed with him. They knew that their country was the 
Evil Empire. They knew that it was abusing their rights. They knew the 
communism was not good for them. They respected Ronald Reagan because he 
spoke the truth. 

Russians respect strength, they respect consistency, and they respect candor. 
When they see you turning your cheek, when they know that you know that 
things are going wrong, when they see you pretend things are not what they 
are, when they see you bolster up a man who is not doing what is in the best 
interest for Russia, they lose respect. 

That is why the Russians today have no respect for us, in my opinion, Mr. 

We have to earn the respect of the Russians by being strong, by being candid, 
and by being transparent and consistent. If we do that, I am convinced Russia 
can be an equal, stable partner of us. 

We have to ask the tough questions. We have to ask what Russia is doing 
building a multibillion underground complex in the Ural Mountains at Yamantau 
Mountain, the size of the Washington beltway, deep enough to withstand a 
nuclear first strike hit. 

This administration has not been able to get the answer to that question 
because they will not pursue the issue. I work with the CIA on a regular 
basis; and I can say today, the administration knows no more about that 
project today than they did 5 years ago when I first raised it. 

We do not have the respect of the Russians under the current relationship and 
policies. Therefore, I am convinced that this body needs to explore in great 
detail what we have done wrong, what we have done right and, most 
importantly, lay out a plan for the future, a plan that looks at where Russia 
is today; and what we can do as a Nation, working with the Russian people who 
are our friends, to build a new Russia, a strong Russia, a Russia with a 
freely elected president who works closely with our President and a new Duma 
that works with our Congress, a freely elected Duma, even if it includes 

Remember what I said, Mr. Speaker. How can this administration say that we 
had to work with Yeltsin because of our fear of the Communists? At least the 
Communists in Russia were elected in free and fair elections, as much as we 
did not like it. 

I wish I could say the same about the Communists in China, which this 
administration falls all over on a regular basis. If the Communists are those 
elected by the Russian people, we have to work with them. It does not mean we 
have to embrace them. It does not mean we do not want to help the pro-Western 
forces, the formers like the Apple party, the Yabloko party, the Nash Dom, 
the People's Power party. We still work with them, but we work with all 
factions in Russia. 

My hope is, as we complete this first half of this session, the focus on 
Russia becomes a dominant focus. As we approach the presidential elections, 
this country needs to have a national debate in a constructive way over what 
happened, why did it happen, where did $20 billion go, what did we get for 
that investment, and why are the Russian people more negative about America 
today than they were when they were dominated by a Soviet Communist system? 


The Nation
October 4, 1999
How US Hypocrisy Feeds Russian Corruption
Matt Bivens is the editor of The Moscow Times (, an 
English-language daily newspaper.


The Russian Foreign Minister says it's an American plot to keep Russia weak. 
The head of the KGB-successor agency offers that same conviction in a formal 
briefing to President Boris Yeltsin. The Kremlin press office compares it to 
the Spanish Inquisition. And the nation's most liberal, pro-Western 
newspapers splash articles across their front pages about US plans to provoke 
a new cold war--to isolate Russia, destroy its economy and perhaps even drag 
Yeltsin himself to the United States for trial as a common thief.

Why is Moscow so aroused? Well, Americans woke up a few weeks ago, picked up 
the New York Times and had an epiphany. It turns out that Russia is corrupt! 
Now we are scolding the Russians: How did you get so corrupt?

Russians, amazed, respond that this is outrageous hypocrisy. They have been 
suffering under an openly rapacious and corrupt regime for eight years. 
Throughout, as Russians well know, both the US government and news media have 
been apologists for that regime. They have winked at massive theft and 
wrongdoing, misreported it [see Matt Taibbi and Mark Ames, "The Journal's 
Russia Scandal," in this issue] and, in the case of the government, even 
subsidized it.

Why? Because the ends justify the means: It seems that there are good people 
called "reformers" who are forcing enlightenment upon Russia. They speak 
English, and they are eloquent about their desire to build democracy and 
capitalism. All thinking people ought to support these reformers even if that 
support has to be manufactured.

The American headlines about corruption and Russia are revolving around two 
separate and so far unrelated allegations. One is that Yeltsin and his 
daughters, among others, were given cash payments from Mabetex, a Swiss 
company that has won sweet contracts to refurbish the Kremlin; the other is 
that billions of dollars have churned through a few accounts at the Bank of 
New York in what may have involved the laundering of money whisked out of 
Russia. (There are other scandals, but those are the ones that have 
interested Americans.)

So exactly whose billions were these in the Bank of New York? The explanation 
du jour is that they were the collective insider-trading winnings of the 
Russian political elite, who racked up fortunes on Russia's capital markets 
and then converted them into dollars and shifted them abroad before last 
year's financial crash. Among those pushing this explanation is Yuri 
Skuratov, Russia's suspended prosecutor general, who said recently that 780 
top Russian officials are being investigated for insider trading. (The 
Kremlin suspended Skuratov earlier this year when, after three years of good 
work, he suddenly started prosecuting. Skuratov has assisted Swiss officials 
on the Mabetex case.)

But hypothesizing about the precise origins of the Bank of New York money is 
an exasperatingly academic exercise. It misses the point. We already 
know--we've known for years--that Russia has been bled dry by corruption. The 
Kremlin's own study of corruption, released in the summer of 1998 and ignored 
by the Western press, estimated that it was costing the country somewhere 
between $15 billion and $20 billion every year. For comparison, the IMF has 
loaned a total of just $16 billion to Russia since 1992.

In Russia, money is stolen hand over fist in all sorts of ways. One 
despicable practice is known as "authorized banking," whereby a politically 
connected bank is authorized to handle federal budget money. Pension 
payments, subsidies for Russia's remote Far North communities, funds to 
rebuild Chechnya--all of it pours into these banks, and far from all of it 
comes back out. Yeltsin's regime has also handed out lucrative exemptions 
from customs duties on imported alcohol and cigarettes. These have gone, 
among others, to the Orthodox Church and to a fund for excellence in sports 
headed by Yeltsin's tennis coach and friend, Shamil Tarpishchev. Collectively 
these exemptions have cost the national coffers hundreds of millions of 

Money is also sometimes diverted from corporations--again, often with Kremlin 
acquiescence. Prosecutors say hundreds of millions of dollars have been 
siphoned from the airline Aeroflot--a partly state-owned company run by 
Yeltsin's son-in-law--into a Swiss shell company. And when parliamentary 
auditors uncovered massive theft at the state-owned Ostankino television 
station in 1995--Channel 1, the only station that could be seen throughout 
Russia--Yeltsin "solved" the problem by signing a decree liquidating 
Ostankino and transferring all its equipment and privileges to a new company 
called ORT. End of investigation.

Russia is so corrupt that trying to convey the scale is fiendishly difficult. 
It's like trying to describe, in a few words, the American economy. How? You 
end up reduced to reeling off a few disconnected facts and anecdotes, in the 
hope that at least one of them will provide an image that captures the whole.

For example: Russia is, in the IMF's wonderfully chilling phrase, a "net 
exporter of capital." Wealth is rushing out of the country as if it were a 
deflating balloon. This is capital flight, not laundered money. But while 
there are no hard data, it's likely that much of this wealth is ill gotten. 
Once this was the Soviet Union, a world superpower; today the Russian 
national budget is just $29 billion, less than that for New York City (that's 
right: Rudolph Giuliani has more financial resources at his disposal these 
days than Boris Yeltsin).

Or maybe: This year the Russian Central Bank admitted that for years it has 
been routing the nation's hard-currency reserves through a shell company in 
the British Channel Islands called FIMACO. Some $50 billion has washed 
through FIMACO over the years, including IMF loans. The Central Bank says 
FIMACO--a company it controls but that apparently has no employees or 
offices--invested the hard-currency reserves wisely. But it has yet to 
provide a real accounting of how that was done or of where the profits from 
those investments have ended up. This is roughly equivalent to Federal 
Reserve Chairman Alan Greenspan opening a shell company in the Bahamas and 
transferring everything in Fort Knox and the New York Fed offices to it. The 
IMF has harrumphed a bit about the FIMACO arrangement, and Russia's special 
envoy to international financial institutions, Mikhail Zadornov, recently 
admitted that it had been "inadmissible." But, he added, "the Central Bank 
has clearly promised never to repeat such a thing."

But what about the reformers? Aren't they fighting all this rot? Not really. 
Apologists for the reformers say they have been well meaning, and that they 
simply made a few tactical errors in the way they handled privatizing Soviet 
assets. But a sheepish "Oops!" hardly makes up for handing away the oil 
companies for free, and the reformers have more than that on their 

Russia's most famous "young reformer" is Anatoly Chubais. Western media sell 
Chubais as Russia's leading champion of democracy. But this "democratic 
reformer" all but called for a Chubais-led junta on the eve of Yeltsin's 1996 
bypass surgery; and he was publicly indifferent to the war in Chechnya, even 
when civilian neighborhoods were being strafed.

Chubais is actually best known for a breathtakingly cynical and corrupt 
privatization program in which oil companies, metals combines, 
telecommunications firms--the crown jewels of Soviet industry--were divvied 
up among a few powerful men described in both the Western and the Russian 
media as "oligarchs." The oligarchs, who control the Russian media, have been 
able to set a national economic agenda that has led to richer oligarchs and 
poorer Russians. And they boast of controlling the political agenda. Yet 
after years of discussing the oligarchs and the "auctions" of state-owned 
assets that enthroned them, US officials were still embracing privatization 
as "reform" [see Janine R. Wedel, "The Harvard Boys Do Russia," June 1, 1998].

In the wake of last year's financial crash, former Prime Minister Viktor 
Chernomyrdin was briefly brought back into power. Much could be written about 
Al Gore's pal Chernomyrdin and corruption in Russia. Suffice it to say that 
markets greeted Chernomyrdin's revival by dumping rubles but also by 
frantically buying up stock in the natural gas monopoly, Gazprom, 
Chernomyrdin's pet company. Chernomyrdin's response to the ruble meltdown was 
to advocate an "economic dictatorship." Ordinary Russians wondered, quite 
sensibly, what the difference was between an economic dictatorship and a 

"Calm down, world," is the response of Deputy Secretary of State Strobe 
Talbott. Along with Treasury Secretary Lawrence Summers, Talbott has been the 
architect of Clinton's Russia policy. "We have been aware from the beginning 
that crime and corruption are a huge problem in Russia and a huge obstacle to 
Russian reform," he says. "It is going to take decades [and] the problem will 
only get worse if you isolate Russia." To hear Talbott, Summers, Gore, the 
IMF and the rest of the gang tell it, all these years we have been "engaging 
Russia"--and the only two choices are to "engage" Russia or to "isolate" 

But there are all sorts of ways to engage Russia that fall well short of 
subsidizing and apologizing for a corrupt regime that the Russian people 
themselves despise. Probably the best thing we can do is apologize and set 
the record straight. We could also change our aid policies. Let's have no 
more vague multibillion-dollar IMF loans--loans often tied to dogmatic 
economic scoldings--that evaporate without a trace. Instead, we could invest 
in concrete projects in the national interest of both Russia and America: 
upgrading safety at Russia's nuclear power plants leaps to mind, as does 
improving the country's weapons security. If we want to invest more 
specifically in Russia's economic infrastructure we could set up a massive 
educational exchange.

That would be engagement. What we have offered instead is an enormous 
check--one that comes with the understanding that we are giving so much money 
because we can't be bothered to spend the time trying to understand Russia's 
national needs and problems or even worrying about whether the aid is soaked 
up by FIMACO, oligarchs and USAID's clique of pet "consulting" corporations.

In the "who lost Russia?" debates there is one last argument. It is the trump 
card, quoted axiomatically as a truism: "Russia was never ours to lose." One 
strength of this argument is that it's impossible to refute--we'll never know 
now, will we? But it's defeatist. Moreover, it ignores the enormous moral 
authority we had in post-Soviet Russia. Our media and governments had for 
years appealed to the people of the Soviet Union over the heads of the 
Kremlin. It was hard work. By paying Russians this respect, we in turn earned 
their respect. Now it's all squandered.

In the United States, talk of Russian corruption is forcing a healthy debate 
on a reluctant White House. Some of the reporting and politicking may be 
sloppy, but it's still democracy in action. Not so in Russia. Here, it's 
axiomatic that Russia is corrupt. But they know we helped to build the system 
and to apologize for it; they think our cries of outrage are late and 
insincere because they are so perfectly timed for a US presidential election 
season. Ordinary Russians are also feeling defensive because they know that 
they are collectively complicit. Russians often cite the old chestnut that in 
a democracy, people get the government they deserve. Russia re-elected 
Yeltsin knowing his regime was corrupt; it was a choice they agonized over, 
but few Americans commiserated then--we were too busy cheerleading and 
ignoring how the corrupt Yeltsin team had billions of dollars to spread 
around and a chokehold on all television coverage. Many Russians also feel 
they are "corrupt" in that doing business involves evading taxes--which 
remain crushingly high at Washington's insistence. Rather than seriously 
oppose the looting of the budget, we have for years insisted that Russia 
collect more taxes to make up the difference. (And money kept hidden from tax 
authorities often must be parked abroad, in places like the Bank of New York.)

Even so, if the Mabetex/Bank of New York stories had broken just six months 
ago, the Communists would be baying and Moscow Mayor Yuri Luzhkov, who wants 
to replace Yeltsin, would be doing his populist best. Now, however, the 
opposition is curiously muted. The reason? Fear that a cornered Yeltsin will 
lash out.

In about ten months, Yeltsin is supposed to leave office. Unless he can plug 
a loyalist into the Kremlin--through elections or otherwise--and get a 
Ford/Nixon-style blanket pardon, Yeltsin surely fears he will be hounded by 
future governments and prosecutors. The Kremlin inner circle that Russians 
derisively call "the Family"--chief among them Boris Berezovsky, who even in 
1996 was urging Yeltsin not to have presidential elections--are feeding that 
fear. Like Yeltsin, the Family members need a loyal lieutenant as the new 
president. The catch is, Yeltsin's anointed successor, Prime Minister 
Vladimir Putin, is unelectable in the few months remaining. In fact, the 
uncharismatic former KGB man Putin will probably never be electable as long 
as he is opposed by Luzhkov and Luzhkov's prize allies, former Prime Minister 
Yevgeny Primakov and the powerful NTV television.

As Yeltsin mulls this over, the Family is whispering in his ear. Long before 
the Bank of New York made headlines, the Family's media were trumpeting the 
idea that there can be no safe retirement for Yeltsin. Berezovsky-controlled 
ORT national television, for example, has reported loudly (and incorrectly) 
that a Luzhkov lieutenant has advocated having Yeltsin shot in the same 
manner as Romanian dictator Nicolae Ceausescu. That "report" was engineered 
by the Family and had an intended viewership of one: Yeltsin.

Literaturnaya Gazeta, a paper controlled by Luzhkov's pet holding company, 
AFK Sistema, countered with a report in August that forces in the Kremlin 
were preparing to discredit the Moscow mayor by hitting his city with 
terrorist bombings. Since the end of August, Moscow has been stunned by three 
major bombings that have killed more than 200 people.

Enter the United States--wailing and gnashing our teeth about Russian 
corruption. For the Family, the timing could not be better. Another 
Berezovsky property, the newspaper Nezavisimaya Gazeta, promptly reported 
that Luzhkov was somehow orchestrating all the embarrassing international 
news coverage. Berezovsky also said as much in an interview with the Interfax 
news agency: He argued that "Luzhkov and his henchmen" were behind the 
Western media reports and should be "brought to justice." Meanwhile, 
Izvestia, controlled by the Uneximbank/Rosbank empire, has been reporting 
that a Republican White House would seek to extradite and prosecute Yeltsin.

Now imagine Yeltsin inside his Kremlin bunker--following the back-and-forths 
in the Russian media about his future and contemplating his colleagues on the 
world stage. He must be thinking: What did Slobodan Milosevic ever do in 
Kosovo that I didn't do ten times over in Chechnya? How corrupt is Indonesia 
compared with Russia? And even if I want to step down, can I afford to if the 
Russian Communists and the US Republicans both want me on trial?

The White House ought to be countering the Berezovsky spin with a 
Machiavellian public relations operation of its own--one designed to convince 
Yeltsin that his safety is assured, provided he leaves office democratically. 
But it may be too late. There are a handful of ways Yeltsin and the Family 
can scuttle elections--and since the Bank of New York story broke, all have 
shifted into high gear. Yeltsin could simply declare a state of emergency and 
put the vote on hold. Plausible-sounding justifications can be found in the 
Moscow bombings and the Chechen rebels who recently poured over the border 
into Dagestan. The Kremlin could also stage-manage a new crisis by yanking 
the embalmed Lenin out of Red Square and burying him in a cemetery, provoking 
a largely harmless Communist demonstration that could be overdramatized.

A less confrontational way would be for Yeltsin to resign on a date--November 
7, the anniversary of the Bolshevik Revolution, is often mentioned--carefully 
chosen to wreak the most havoc. Or the Kremlin could ram through a treaty on 
reunification with Belarus. Putin and Belarus President Alexander Lukashenko 
recently came to agreement in Minsk on just that. They say that the new state 
must be consummated before the 2000 election. And once it's a new country, it 
will be easy to argue that the rules for a Kremlin election need to be 

All of the above could even happen more or less simultaneously. That is more 
likely than an orderly transfer of power to, say, a President-elect Primakov. 
If Russian democracy does end up definitively jettisoned, I propose we all 
meet at Starbucks and read about it in the New York Times. One of us can drop 
our Mochalotta Chill in shock and exclaim: "Oh no, look: Russia's a 
dictatorship! Why didn't they listen to the reformers?"


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