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Johnson's Russia List


September 18, 1999   
This Date's Issues: 3507 3508  

Johnson's Russia List
18 September 1999

[Note from David Johnson:
1. Reuters: Russia's rumour-mill cranks up again.
2. Reuters: Lebed says won't serve under Yeltsin - magazine.
3. Baltimore Sun editorial: Russian violence hints of a Yugoslavian fate.
4. Financial Times (UK): FBI under fire on Russian funds 'laundering' 
5. House Banking Committee Money Laundering Hearing Witness List.
6. Tom Manson: Another view. (of corruption in Russia)
7. Ha'Aretz (Israel): Isabella Ginor, Lebed, Sets Conditions for Accepting 

8. Journal of Commerce: John Helmer, RUSSIA'S NEW RAIL MINISTER IS THE OLD 
ONE. (Aksyonenko)

9. The Nation: Matt Taibbi and Mark Ames, AFTER MISREPORTING THE STORY, 


11. Los Angeles Times editorial: Keep Russia Probe Nonpartisan.
12. Interfax: Zyuganov Says Yeltsin 'Absolute Evil'] 


Russia's rumour-mill cranks up again
By Gareth Jones

MOSCOW, Sept 18 (Reuters) - Russia's political rumour-mill, which has been 
working in overdrive this week, cranked into action again on Saturday with 
talk that President Boris Yeltsin might soon be back in hospital and a new 
successor named. 

The liberal Sevodnya newspaper said Yeltsin was in failing health and was 
preparing to name former paratroop general Alexander Lebed, now governor of 
Siberia's Krasnoyarsk region, as his preferred heir instead of Prime Minister 
Vladimir Putin. 

An Internet website which often publishes highly speculative stories also 
said Yeltsin, who has suffered repeated health problems, would be admitted to 
hospital in the next two weeks. 

A Kremlin spokeswoman declined to comment on either report, saying: "We only 
confirm official information." 

A senior presidential aide, Igor Shabdurasulov, told Interfax news agency 
there were "no political scenarios which envisaged the early resignation of 
the president." 

"(These rumours) are linked to the political interests of those who initiate 
them, representing what they desire as reality," he was quoted as saying. 

The latest speculation came as Russia's mass media, renowned for their love 
of cloak-and-dagger intrigue, struggled to make sense of recent events which 
include a bombing campaign that has killed nearly 300 people in Moscow and 
other cities. 

It is still not clear who set off the blasts, but officials have blamed them 
on Chechen warlords fighting Russian rule in the turbulent North Caucasus 


Sevodnya said Lebed was now tipped to return to Moscow because of his 
experience in dealing with the Chechens. As Yeltsin's peace envoy, he 
brokered a deal in August 1996 ending Russia's ruinous two-year war with the 
Chechen separatists. 

"It cannot be excluded that the nation will learn as soon as Monday the name 
of Boris Yeltsin's latest heir," the paper said. 

The paper also said controversial businessman Boris Berezovsky was set to 
rejoin Yeltsin's advisory Security Council for the same reason. Berezovsky 
has good ties with Chechnya and has helped in the past to release hostages 
held by gunmen there. 

But in comments to Ekho Moskvy radio on Saturday, Berezovsky played down talk 
he was about to take up an official post. 

"I know nothing about this. Nobody has proposed anything to me," he said. 
Berezovsky also proposed Russia start talking to the Chechen warlords -- an 
idea hardly likely to win him promotion amid the current anti-Chechen 
atmosphere in Moscow. 

Lebed also dismissed talk of his impending return to the Kremlin. "I have 
nothing to do with that," he said in an advance copy of an interview with the 
German news magazine Spiegel. Lebed said he would never accept any office 
under Yeltsin. 

Yeltsin has said he wants Putin, appointed premier last month, to succeed him 
after next summer's presidential election. 


Sevodnya said Yeltsin's health was deteriorating and that his close 
entourage, which includes his daughter Tatyana Dyachenko and Berezovsky and 
is widely known as the Family, had been given "carte blanche" to take major 
political decisions. 

The Internet website echoed that view. 

"According to several sources in medical and political circles, Yeltsin's 
state of health has declined swiftly in the last few days," it said. 

The article, signed by Eduard Bogdanovich, noted that Yeltsin cancelled 
several planned Kremlin meetings this week. 

"The situation is near to critical," it said. 

Sevodnya noted that Lebed did not attend Friday's extraordinary session of 
the Federation Council, the upper house of parliament which groups regional 
leaders. As governor of Krasnoyarsk he has a seat in the chamber. 

"After all, his work as a governor is coming to an end," said Sevodnya of 
Lebed, who came a strong third in the 1996 presidential election. He gave his 
support to Yeltsin in the second and final round of that election. 


Lebed says won't serve under Yeltsin - magazine

BERLIN, Sept 18 (Reuters) - Former paratroop general Alexander Lebed, who is 
lining up as a contender to succeed Russian President Boris Yeltsin, said on 
Saturday he would not accept any office under the ailing Kremlin leader. 

``I have nothing to do with that,'' Lebed, who is governor of Siberia's vast 
Krasnoyarsk region, said in an advance copy of an interview with the German 
news magazine Spiegel. 

Lebed vowed on September 9 to run for the Russian presidency in mid-2000, 
saying Russia needed a general to run the country. He likened himself to 
General Charles de Gaulle, who extricated France in the 1950s from the 
Algerian war and restored political stability by creating the Fifth Republic 
with a strong presidency. 

Rumours have circulated in Moscow this week that Yeltsin is in failing health 
and might name Lebed as his preferred successor instead of Prime Minister 
Vladimir Putin. 

Apart from concerns about Yeltsin's health, Russia has been thrown into a 
state of confusion by a series of bloody bombings in Moscow and other cities 
that have killed nearly 300 people. 

Nobody has claimed responsibility for the attacks on civilian apartment 
blocks, but officials have blamed them on Chechen warlords fighting Russian 
rule in the turbulent North Caucausus region. 

Lebed has experience of dealing with the Chechens. He won considerable 
prestige in August 1996 when as Yeltsin's peace envoy he brokered a deal 
ending Russia's two-year war with Chechen separatists. 

He warned in the Spiegel interview that there was now a real danger of Russia 
falling apart and descending into chaos. 

If individual regions in Russia got their hands on nuclear weapons it would 
be ``terrible for the whole world,'' he was quoted as saying. 

``Will our home become a home for bandits? Or will we become a country which 
tries to become healthy and which people enjoy having contact with.'' 

``Chronic mistrust, fear and bitterness'' ruled Russia after eight years of 
apparent democracy, he said. 


Baltimore Sun
September 18, 1999
Russian violence hints of a Yugoslavian fate
Terrorism: Apartment building bombings have killed hundreds and spread fear 
and acts of revenge.

APARTMENT bombings that have killed about 300 people are unleashing worrisome 
outbursts of hatred in Russia. The country's top officials are fanning 
hysteria and crying for revenge.

"We must stamp out this vermin," Prime Minister Vladimir Putin says of 
Chechen and Dagestani Islamic separatists whom he accuses of the bombings. 
"We should not whimper and whine, we all need to act decisively, determinedly 
and energetically."

In another chilling harangue, the prime minister called for ethnic Russians 
to take revenge. Already, he said, "we were being turned into second-class 
citizens in our own homes."

Amid reports that authorities discovered 19 tons of explosives in sugar sacks 
transported from a Southern Russian mill, citizens are panicking. Militia 
officers and vigilantes are harassing minorities on the streets and in their 
homes, claiming to ensure public safety. In at least one town, businesses 
belonging to Islamic minorities have been firebombed.

These expressions of hate, if they escalate, could prove disastrous for 
Russia. A multinational state of different languages, cultures, religions and 
ethnic groups must be based on mutual tolerance or it can become an 
uncontrollable tinderbox.

Arbitrary scapegoating has often been part of Russian history. In czarist 
times, Jews were blamed for adversities and subjected to pogroms. Under 
Stalin, hunts for saboteurs cost millions of lives. "Alien" ethnic groups, 
including Crimean Tatars and Chechens, were collectively punished.

President Boris N. Yeltsin should move decisively to curb passions caused by 
the recent bombings -- or Russia could end up as another Yugoslavia, where 
neighbors turned against one another, causing the country's disintegration.


Financial Times (UK)
September 18, 1999
[for personal use only]
FBI under fire on Russian funds 'laundering' 
By Thomas Catán in New York and Jimmy Burns in London

The Federal Bureau of Investigation faces mounting questions over its 
handling of the inquiry into the alleged laundering of billions of dollars in 
Russian funds through the Bank of New York.

It now appears the FBI took little action on the case for six months after it 
was first notified by British intelligence, prompting UK officials to appeal 
directly to the White House to take action.

About $6bn in Russian funds was allowed to move through the nine suspect 
accounts at the Bank of New York in the year after FBI agents were first 
alerted to the suspicious activity.

It is understood that British intelligence, through the country's National 
Crime Intelligence Service, first informed the FBI of suspicious activity 
involving accounts at the Bank of New York in September 1998. That month US 
investigative authorities opened an inquiry into the case, issuing the first 
subpoenas for documents from the bank.

Investigators asked the bank to keep the accounts open and operating normally 
in order to track the source and destination of the funds. But it is 
understood the matter languished at a relatively low level in the FBI for at 
least the next six months as billions of dollars in Russian funds moved 
through the suspect accounts.

For months a single agent was assigned to the case. But the FBI says this is 
standard procedure and does not suggest the investigation was given low 
priority. "While we do not discuss details of a pending investigation, as a 
matter of general policy typically there is just one case agent regardless of 
the manpower allotment overall to the case," said James Margolan, FBI 

By March 1999 British intelligence had become so frustrated at the perceived 
inaction by US investigators that they circumvented the traditional command 
structure and went directly to the White House's National Security Council 
and State Department.

Shortly after, administration officials led by Jonathan Winer, deputy 
assistant secretary of state, visited the FBI to be briefed on the inquiry's 
progress. However, other administration officials said they were rebuffed by 
investigators, who refused to provide them with information on the case.

However, it is understood that around that time the investigation was moved 
up to a higher level at the FBI.

Between September 1998 and August 1999 - when word of the investigation 
leaked to the press - $6bn moved through the nine accounts under 
investigation, according to people familiar with accounts. Investigators 
froze the accounts in August, seizing just $20m of the $10bn that moved 
through them over several years.

Critics are asking why the FBI allowed billions of dollars to move unfettered 
through the accounts while apparently giving little importance to the 
investigation. Questions over the FBI's role are likely to be a key theme in 
congressional hearings into the affair due to begin on Tuesday.


Press Release
House Committee on Banking and Financial Services
James A. Leach, Chairman

For Immediate Release: Contact: David Runkel or Andrew Parmentier
Friday, September 17, 1999 (202) 226-0471

Money Laundering Hearing Witness List

Rep. James A. Leach, Chairman of the House Banking and Financial
Services Committee, today released the witness list for the first two days
of Committee hearings on allegations of money laundering and corruption in
Russia. The hearings will begin at 10 a.m. Tuesday, Sept. 21, and
Wednesday, Sept. 22, in Room 2128 Rayburn House Office Building.

Tuesday, September 21

Panel 1
Lawrence Summers, Secretary of the Treasury

Panel 2
James Woolsey, Shea & Gardner, former Director of Central Intelligence
Richard Saunders, Director, Nixon Center 
Vladimir Brovkin, American University professor, Transnational Crime and
Corruption Center
Emmanuel Zeltser, American Russian Law Institute
Frank Cilluffo, Center for Strategic and International Studies

Panel 3
Robert Levinson, Managing Director DSFX, former special agent, FBI
Richard Palmer, Cachet International, Inc., and a former CIA station chief
Yuri Shvets, consultant, former KGB agent

Wednesday, Sept. 22

Panel 1
James Robinson, Assistant Attorney General, Criminal Division

Panel 2
Yuri Shchekochikhin, Member of the Russian Duma and editor of Moscow
newspaper, Novaya Gazeta

Panel 3
Thomas Renyi, Chairman and CEO, Bank of New York

Panel 4
Anne Vitale, Managing Director and Deputy General Counsel, Republic
National Bank of New York

Additional witnesses may be added.

In announcing the hearings, Leach said, "The purposes of these hearings
will be to underscore the degree of corruption in Russia and any taint to
the US and/or the international financial system. In addition, it is
important for the West to adequately respond to the current Russian
kleptrocratic situation in a way that assists the Russian people in
successfully making the transition from a communist to a democratic
free-market society.

"Let me emphasize that the Committee's interest is in putting the facts on
the public record in a fair manner," Leach said. "Our goal is not simply
to rehash the past, but to look to the future by examining the past. My
principal concern isn't "Who Lost Russia?," but what can be done to save
Russian democracy." 

Additional hearings, including one examining the question of whether
International Monetary Fund monies were improperly or illegally
transferred out of Russia, will be held later in the fall, Leach said. 


Date: Fri, 17 Sep 1999 
From: Tom Manson <>
Subject: Another view

Amidst the sound and fury of recent stories of corruption, I was amused to
discover the following passage whilst rereading one of my favourite books,
"England their England" by A.G. Macdonell. The book, which was published
in 1933, is a humorous and affectionate description of the English, written
by a Scot - its description of a Cricket match is a classic of humorous
literature - and the passage below describes a scene where the narrator
(Donald) meets an Engineer from Yorkshire (Mr.Rhodes), who has traveled the
world for many years, supervising different types of projects using
machines made in England. Before the war, of course, means before the first
world war.

"Russia, now," pursued Mr. Rhodes," that is a queer place. I was there
before the War, with dredgers. We were to dredge a canal near Petersburg,
and I went out there to show those fellows how to manage scoops and
grapplers. It was mostly grapplers - the canal was full of rocks, you see -
and some nob or other had got a contract for supplying barges for the
machines, a Grand Duke or Heir Apparent as like as not, and the barges were
rotten. Yes Mister, they were rotten. And every time we grappled a rock and
hauled, instead of the rock coming up, the barge went over, and the
grappler with it. In another month we would have had to dredge the canal
for dredging machines. We couldn't use our own barges, because this nob,
whoever he was, had bribed everyone right and left. It would have been a
scream if we hadn't been working on a time-limit - job not done by a
certain date, no money. And then this nob would get the contract himself,
fish up the grapplers and make a packet. My word, but it was a business."
"What happened in the end? " enquired Donald politely.
Mr. Rhodes blushed.
"To tell you the truth, Mister, I had to do a thing I didn't like doing.
But I had my firm to consider, and I've been with them now for
one-and-forty years. I couldn't let them down, now, could I? So what could
I do but what I did?"
"And what was that?"
"Well, I bribed the chief engineer to certify that the canal was dredged.
It was the only was round that nob. He had bribed everybody except the
chief. That's a cardinal rule in life, Mister, and I pass it on to you
with pleasure, because I like you. Never bribe if you can possibly help it,
but when you do, only bribe the heads. Stick to that and you can't go wrong."

There is much there which is still recognisable today.


Date: Fri, 17 Sep 1999 
From: Gideon Remez <> 
Subject: Lebed Sets Conditions for Accepting Premiership

Lebed Sets Conditions for Accepting Premiership 

By Isabella Ginor 
Hebrew version published in Ha'Aretz (Israel), September 17 1999. May be
quoted freely with appropriate credit. Full reprinting by permission of
author only. 

The Moscow press yesterday was rife with speculation that President Boris
Yeltsin would, within a few days, be hospitalized for another heart
operation, and that the acting president for the interim would not be Prime
Minister Vladimir Putin, whom the constitution nominates for the job and
whom Yeltsin himself named as his proposed successor only last month. One
scenario sees Putin being sacked due to his failure to defuse the
Dagestan-Chechnya crisis and  prevent the bombings in the Russian heartland
-- to be replaced by General Aleksandr Lebed. 

"Proposals are streaming in to appoint him as Prime Minister," confirms
Lebed's advisor and friend Col. Mikhail Bergman. "The matter is being
studied very seriously at the President's office and the vatrious
ministries, including Defense. A lot of letters are coming in calling for
Lebed to be appointed. There is simply no other way. The professionals have
to be in power, or there will be no Russia." 

Do you believe the rumors about Yeltsin's impending hospitalization? 

"I don't have to believe rumors, I'm just certain that's the case. At the
end of the day Yeltsin will have to act logically, forget about ambitions
and insults, and think about Russia." Lebed himself is avoiding public
comment, and refused Thursday to leave his governor's office in Krasnoyarsk
to come to Moscow for a session of the Federation Council. But Bergman, on
his behalf, presents two principal conditions for Lebed's agreement to
assume the Prime Ministership. 

"In '96 Yeltsin suckered Lebed, and even today Aleksandr Ivanovich might be
used as a card by the mafia," says Bergman in a telephone interview from
his home in Tiraspol, Moldova -- explaining that by "mafia" he means the
"family" of Yeltsin's  relatives and cronies; concerning the corruption
charges against them, Bergman says there's no smoke without fire.
Therefore, he relays Lebed's demand to receive all powers "in such a way
that until the Presidential elecion of June 2000 no one will be empowered
to dismiss him from the Prime Ministership.  That's one condition. The
other is that he gets to appoint the chiefs of all the 'power ministries'
-- Defence, Interior, Security Services -- and they all take their orders
from him alone. Lebed will accept the appointment only if  these conditions
are met." 

Putin may have been anticipating a threat from Lebed's direction when he
told the Duma two days ago that due to the Chechens' acts of terrorism,
Russia ought to abrogate the Khasavyurt Agreement  -- the pact reached by
Lebed with the Chechens in '96. How does Lebed respond to that? Bergman
quotes him: "Aleksandr Ivanovich just tells Putin, Zhirinovsky and anyone
else who attacks the agreement that they can take their own children and
relatives with them down to fight in the trenches in Dagestan, and then
let's see what they have to say. It's easy for them to talk while the
children of the upper crust go overseas or live in fancy houses guarded by
200 men, and in the army innocents are being killed, kids who've served
barely two months." 

"Power," says Bergman, "is being held now by 'hawks' who want to ignite a
civil war, and such a war is actually going on already. People are being
killed in the Caucasus, so their relatives come to Moscow to kill
civilians. I condemn that, but if it continues the people will begin to
think -- and I've seen what an excited mob can do. It's very tough to stop
such a crowd, and the army will not shoot at its own people.  In order to
prevent that from happening, to forestall a war that will spread through
the CIS like it did in Yugoslavia, Lebed has to come to power. All the
military thinks so, as do the police and civilians: enough of this, they're
saying, we need a strong leader, he (Lebed) can handle it. I can't say for
sure exactly when this will happen, but it will be very soon." 

Has the Chechen leadership contacted Lebed? 

"It's not a question of personal contacts. Chechnya must be helped out. The
situation there is restless. It has undergone a horrible, destructive,
bloody war, and people there are thinking in only one direction -- killing.
A man like Lebed is needed in order to help Chechnya, and primarily
Maskhadov (the Chechen President, Lebed's partner to the Khasavyurt
agreement). He too is being torn apart (by the extremists), pushed to
continue fighting and take revenge on the Russians." 

According to the transcript of an intercepted phone call published by a
Moscow paper, billionaire Boris Berezovsky is financing the Chechens. He is
also said to have bankrolled Lebed's election campaign in Krasnoyarsk. 

"Everything is being done to persuade the people that Berezovsky and Lebed
are in league," says Bergman. "But that's a canard that only two-year-olds
might believe. It's the work of the FSB." 

According to Bergman, he personally became a target for FSB persecution
after he levelled harsh criticism at Putin in a previous interview with
this correspondent on September 9. Soon after it was published and
broadcast, he boarded a Moldovan airliner in Moscow bound for Tiraspol. "At
eight p.m. OMON troopers surrounded the plane, armed with automatic weapons
and commanded by a Col. Gagarin of the FSB. They put me and all the other
furious passengers through hell for three hours while they searched the
plane. It was a real provocation against me, the FSB's response to the
interview I gave you. Later I lodged a complaint and received an apology.
But the frightening part of it is that a few hours after the incident, at
five o'clock in the morning, the second apartment block was blown up in
Moscow -- and the same night, they had the time to investigate people who
had criticized the regime." 

Date: Fri, 17 Sep 1999 
From: (John Helmer) 

By John Helmer
Journal of Commerce, to come

MOSCOW. Russia's rail minister for the past three months, Vladimir 
Starostenko, was suddenly dropped by Kremlin order on September 15. No
reason was given in the decree, signed by President Boris Yeltsin. 
The new minister is the old one, and Starostenko's patron, Nikolai 
Aksyonenko. He resumes control of the national rail system, one of the few
cash-rich agencies still under total state control.
Aksyonenko has had a meteoric rise in the last 24 months, first through 
the ranks of the Rail Ministry, and then through the government. For a 
few minutes in May, he was Yeltsin's candidate to become prime minister
in place of Yevgeny Primakov, whom the president dismissed on May 12.
Aksyonenko's appointment was relayed to the speaker of the Russian
parliament, only to be changed, and Sergei Stepashin, then the
Minister of Interior, named in his place. 
Aksyonenko, widely reported to have been the candidate chosen by Yeltsin's
daughter, Tatiana Dyachenko, took the post of First Deputy Prime Minister.
He kept that post through the changeover at the prime ministry from
Stepashin to Vladimir Putin in August. 
Rail industry sources say the latest change was unexpected. "That's
because Starostenko was Aksyonenko's protege. It looks like Aksyonenko
has decided he would be more comfortable running the cashflow of the
rail ministry himself."
Politicians close to the Kremlin say Yeltsin's former election
campaign director, Anatoly Chubais, has said he would agree to return to
the Kremlin as chief of the presidential staff, on condition that
Aksyonenko is removed from his post in the prime ministry.
Chubais is viewed by some Kremlin sources as the only figure capable
of neutralizing the campaign of allegations of corruption now widespread in 
the American media, and the subject of investigations by the Clinton 
Administration and the Congress.
Although Chubais has been named in some of allegations of corruption
published to date, he has responded by denying he has held
bank accounts abroad. He has also claimed that the only trading of 
government bonds he engaged in occurred when he was out of government,
and caused him to lose money.
U.S. Embassy officials in Moscow were unable to say whether Chubais
met Deputy Secretary of State Strobe Talbott, who visited Moscow several
days ago.

The Nation
October 4, 1999
The Journal's Russia Scandal 
Matt Taibbi and Mark Ames co-edit a biweekly politics and humor newspaper in 
Moscow called The eXile ( 


Just before Christmas in 1997, as a tumultuous stock-market crisis ravaged 
emerging markets in every corner of the globe, readers of the Wall Street 
Journal were treated to some good news: Russia was going to emerge from the 
mess unscathed. While conceding that "few debt markets outside Southeast Asia 
were hit harder by recent financial turmoil than Russia's," the Journal's 
Moscow bureau chief, Steve Liesman, added quickly that "many analysts believe 
an equally strong rebound may be in the offing." Moreover, Liesman wrote, 
investors were rapidly coming to the realization that "Russia's problems are 
far different and, for the moment, less dire than those that undermined Asian 
economies." The December 16 piece was headlined, "Russian Debt Markets Due 
for Rebound."

A few weeks later, Liesman and the Journal used even stronger language to 
trumpet Russia's economic merits. They chided investors who were too busy 
"fretting over Asia's financial crisis" to notice what they called "one of 
the decade's major economic events: the end of Russia's seven-year recession."

The Journal's prediction was more than a little precipitate. Instead of 
getting better, things in Russia got worse. A lot worse. Nine months after 
Liesman declared that Russia's debt market was due for a rebound, and just 
over seven months after proclaiming the end of the Russian recession, the 
Journal--like most US newspapers--found itself having to explain the 
near-total collapse of Russia's economy and capital markets.

What is most astonishing is not how badly Liesman and the Journal misreported 
one of the most tragic economic stories of the decade as it was happening. 
The amazing thing is that they won a Pulitzer Prize for their reporting of 
the Russian crisis after the country had gone down in flames. Liesman, who 
left the Moscow bureau in April of 1998 to return to New York, was called 
back to Moscow after the crisis to help write a series of Journal pieces on 
how the Russian financial collapse happened. These articles completely 
contradicted the body of work he had left behind, leaving the impression that 
the collapse had been inevitable all along.

While it's true that throughout the mid-nineties nearly the entire Western 
press corps had painted a similar picture of allegedly successful, if bumpy, 
market reform in Russia, the Wall Street Journal's version was even more 
deluded, and more inappropriately enthusiastic, than the competition's. 
Furthermore, few if any of those other outlets, with the possible exception 
of the New York Times, have as much influence internationally as the Journal. 
And none of those other reporters won the Pulitzer Prize. To win that, the 
Journal ought to have been ahead of the pack throughout; as it was, the 
paper's coverage only stood out as the most spectacular wreck in a huge 

Liesman's Russia coverage was a case study in the kind of narrow colonialism 
and provincialism that is increasingly pervasive in American foreign news 
reportage. Until the crisis struck, Western reporters based in Moscow focused 
almost exclusively on the Russia story in terms of its relevance to Western 
businessmen--and as long as the stock market was doing well, and companies 
like British Petroleum were still proudly announcing mergers with Russian 
partners, much of the corruption that eventually sank the Russian economy was 
ignored. As a result, an event like the recent Bank of New York debacle 
actually came as something of a surprise to Americans. But for ordinary 
working Russians, a great many of whom have been watching their bosses send 
company money offshore for years while their own salaries go unpaid, the only 
surprise in the New York money-laundering story was that it didn't come out 
sooner. And one reason it didn't is that the Western press, particularly 
pro-"reform" cheerleaders like the Journal, was plainly uninterested, until 
it was far too late, in making an effort to see the corruption that was a 
daily reality for the majority of Russians.

In fact, until the crisis forced them to change their tune, Western reporters 
like Liesman seemed to distrust reports of widespread public despair over the 
Yeltsin regime's criminal policies, preferring instead to rely upon the stock 
market, the pronouncements of the IMF and the results of Russian 
state-produced macroeconomic reports to tell them how the Russian economy was 
doing. As journalists Matt Bivens and Jonas Bernstein wrote in an article in 
the academic journal Demokratizatsia, which criticized Western press 
performance (including that of the Wall Street Journal) in post-Communist 
Russia: "Sadly, there is another dynamic at work here, an element of disdain 
for the Russians as a people.... [Many] Westerners have sympathy for the idea 
that following centuries of oppression, the Russians 'aren't ready' to be 
trusted with complete democracy. Perhaps, then, it is better to let former 
Vice Premier Anatoly Chubais and his Harvard-trained whiz kids manipulate 
matters--always, of course, 'in the larger interest.'"

Liesman, 36, a bombastic, balding New Yorker whose amateur blues band played 
a few coolly received gigs in Moscow clubs in his early years here, is still 
well known in the Moscow press corps as a sort of caricature of a typical 
Moscow-based US correspondent--a loud presence at press conferences and a 
knee-jerk anti-Communist. Despite having lived in Russia since 1992, when he 
came to work for the English-language Moscow Times, Liesman was still using a 
translator in 1998, the year he left.

"I wasn't the only guy who was [working with a translator]," he said. "A lot 
of guys were doing that." When reminded that he was the only one of those 
"guys" who had won the Pulitzer Prize, he conceded, "Well, that's a point."

Like many of the more linguistically challenged members of the foreign press 
corps in Moscow, Liesman fell into the classic trap of making one small group 
of English-speaking Russian politicians his most trusted source of 
information. That clique--including privatization czar Chubais, early Prime 
Minister Yegor Gaidar and allies of theirs like onetime property chief Maxim 
Boycko--was often referred to by Russia observers as the "St. Petersburg 
Mafia" (most of the group came from the northern capital). This group sold 
itself to the Western press as the vanguard of the anti-Communist, 
pro-Western movement and nudged reporters like Liesman into portraying any 
criticism of their policies as aid to the Communist movement.

Liesman's unwillingness to report any negative news associated with the St. 
Petersburg Mafia first became glaringly obvious in early 1996, when he called 
privatization "the most successful and important of Russia's reforms." Part 
of the privatization effort that Liesman praised, the notorious 
"loans-for-shares" auctions, had just created a national scandal due to their 
overt criminality; it had forced loans-for-shares architect Chubais out of 
government. In these auctions of huge stakes in key Russian enterprises, 
Kremlin insiders decided the winners in advance, often helping out by padding 
their bids with government funds. These auctions instantly created a 
super-rich clique of monopolist "robber barons"--many of whom were 
much-vilified names in the US press this past summer, when they began 
appearing in connection with investigations into the Bank of New York scandal.

The criminality of these auctions was well detailed in the Russian- and 
English-language press: Izvestia, for instance, reported that $50 million in 
Ministry of Finance funds had been transferred to Bank Menatep before the 
latter won a huge stake in the oil company Yukos, and more than one paper 
noted the curious anomaly of two banks (Stolichny Bank and Menatep) 
guaranteeing each other's bids in a "competitive" auction for a stake in the 
oil company Sibneft. The winning bid in that auction was just $100.3 million, 
despite the fact that the company, which at the time produced more than 22 
million tons of crude per year, was clearly worth a lot more. Most observers 
at the time believed that the sweeping victory by the Communists in the 1995 
parliamentary elections was at least partly fueled by public disgust over 
these bogus auctions. And every sane observer recognized that the auctions 
represented a profound step away from the Western capitalist model. Even the 
cautiously neoliberal Moscow Times criticized the auctions in a December 30, 
1995, editorial: "As more than one commentator has said, this isn't 
capitalism as the country ought to know it.... While it goes on, and there is 
no reason to think that it will stop, economic growth will be held back, and 
cronyism and cartels will prevent meritocracy and open markets."

Liesman didn't see it that way. His Journal coverage ignored the auctions' 
reported improprieties and dismissed their critics as Communists and 
political malcontents. In a February 7, 1996, article, for instance, he 
compared the criminal investigations into loans-for-shares to "show trials": 
"The [investigations] are at least partly political.... Some in Moscow's 
financial circles even anticipate show trials that would sacrifice a few 
privatization deals to mollify the opposition and save the rest of the 
program." In an interview for this article, Liesman said he believed, and 
still believes, that loans-for-shares was, relatively speaking, a success--or 
at least preferable to the alternatives. "It's in your opinion that 
[loans-for-shares] wasn't successful," he said. "To me, if you ask me, what 
was the alternative? Keeping it in state hands?" Liesman added, "Do I stand 
accused of being on the Chubais bandwagon? If so, I plead guilty. Just like 
the United States government, and just like every other expert we spoke to."

Unfortunately, none of the "experts" Liesman spoke to were ever very 
interested in advertising Russia's problems to the Western investors who read 
his paper. Ultimately, this was the key to the Journal's failure. While 
Western businessmen on the ground in Moscow saw the disaster of the Russian 
state in action--evident in their mass flight from Russia's capital markets 
beginning in late 1997--Journal readers abroad were taken completely by 
surprise when catastrophe struck. As late as June 1998, when Russia's capital 
markets teetered on the edge of collapse and worker protests over nonpayment 
of wages paralyzed rail travel across the country, the Journal was still 
dismissing Russia's troubles as fallout from a few logistical glitches. In a 
June 5 article, Liesman argued that the crisis had its roots at least 
partially in a scheduling blunder by one of then-Prime Minister Sergei 
Kiriyenko's underlings:

Moscow--In the story of how Russia's markets collapsed in May, give at least 
a couple of paragraphs to a simple mistake by a provincial government aide.
It happened that Lawrence Summers...requested a meeting with Prime 
Minister Sergei Kiriyenko. But an aide to the youthful new prime 
minister...knew only that this Mr. Summers was a deputy secretary of the 
treasury--a title unworthy of an audience with a Russian prime minister.
Word leaked out that the two had failed to meet.... Over the next two 
weeks, a bad situation worsened, as ruble-holders rushed to convert to 
dollars, stock prices plunged, and a near panic brought Russia to the brink.
At the time this article was written, Russia was experiencing major unrest. 
The last remaining investors were pulling out en masse, markets were 
collapsing and the debt bubble had grown so large that no new IMF loan could 
possibly save it. But Liesman, apparently eager to reassure his readers, 
attributed May's financial tremors mainly to PR gaffes--as well as the Asian 
financial crisis:

Until the most recent troubles in Asia--riots in Indonesia, more evidence of 
Japan's deep ennui, a nuclear race on the Indian subcontinent--Russia 
appeared to have escaped the ravages of the Asian monetary maelstrom. Its 
notoriously poor tax collection was improving. Economic data showed growth 
for the first time in seven years. Credit Suisse First Boston declared the 
country a buy. Boris Jordan, an American who has become one of the biggest 
players in Russia's stock market, went on vacation to Disney World.
Two things bear mentioning here. One is that before the crash, pro-reform 
journalists like Liesman often justified placing a positive spin on the 
Russian economy by noting that their sources in places like Credit Suisse 
were constantly pumping up Russia as a hot market. The brokers, the thinking 
goes, were the experts--so how could a reporter be remiss by trusting them? 
Answer: very easily. Any good business reporter knows that few stock analysts 
or brokers in emerging markets will go on the record as saying anything 
negative about their host country's economies--because if they do, no one 
will buy into its market. Asking a Credit Suisse trader in Moscow to be 
straight about the Russian market is like asking a Ford dealer to compare a 
Taurus with a Lexus honestly. Quoting analysts is fine to get the bright side 
of a story, but a responsible reporter looks for hard economic data for 
balance--and this is what was consistently missing from the Journal's 

The second fact worth mentioning is that the Russian State Statistics 
Committee was notoriously unreliable. In fact, its chief, Yuri Yurkov, was 
fired for fudging statistics shortly after Liesman's June article appeared, 
news that went largely unreported in the Western press. In contrast, when the 
much-vilified anti-IMF president of Belarus, Alexander Lukashenko, announced 
a 10 percent rise in GDP for 1997, the news was greeted with widespread 
skepticism in the West. A Moscow Times story, for instance, was headlined 
"Belarus Growth a Question of Statistics" and speculated that Lukashenko 
might be "cooking the books." Russia got no such treatment in the reform era. 
The most revealing passage in the June article by Liesman was the line about 
Disney World. Thousands of people were sitting on train tracks to beg for 
their wages, and Liesman was writing about one rich American's plans to 
travel to Disney World.

Then again, lack of empathy for the plight of ordinary Russians was a 
consistent feature not only of Liesman's coverage but of US policy toward 
Russia in general. Like the IMF and the World Bank, both of which felt that 
Russia's need to pay their high-priced consultants was greater than its need 
to pay many of its "economically unnecessary" workers, Liesman revealed a 
concern for wage-earning Russians that extended only as far as their 
perceived utility in the service of global capitalism. When asked why he 
hadn't covered the nonpayment crisis, he replied: "Yeah, but nonpayment for 
what kind of labor?"

Mining coal?

"Coal that was needed, or not needed?" he snapped.

In that same June 5 article, Liesman also suggested that Russia might have 
been better off if it had been more corrupt, not less. "Another policy change 
also hurt," he wrote. "For years, the government had used commercial banks to 
pay its bills. Last year, it moved to a US-style treasury system, with 
branches of its own. The change saved money, reduced corruption and made 
payments more timely. But an unforeseen result was a fall in the cash moving 
through banks--money that these banks once used to play the government bond 

"So when the crunch hit, the Russian banks couldn't help."

Liesman wasn't the only major-market bureau chief to blow the Russia story. 
The Washington Post and the Los Angeles Times both described Chubais as a 
"lightning rod" for unfair criticism when he was fired, downplaying or 
ignoring the many scandals he'd been linked to. Business Week wrote a glowing 
profile of banker Vladimir Potanin after he had been linked to an apparent 
bribe of officials in charge of a major auction Potanin had just won. In 
fact, most of the Western press, like the US government, got the Russia story 
wrong before the crash; as Liesman said, most of them really were on the 
Chubais/reform bandwagon right up until the August crash, when the position 
became untenable. In a 1995 article for the New York Times, John Lloyd, 
onetime Moscow bureau chief of London's Financial Times, dismissed as "facile 
pessimism" claims that Russia was sinking into a quagmire. Like Liesman, he 
would eventually change his tune, writing a much-ballyhooed eulogy of the 
Russian reform effort in the New York Times Magazine this past summer that 
railed theatrically against the corruption in the Yeltsin regime. In that 
article Lloyd even denounced the loans-for-shares auctions as acts of 
"colossal criminality"--language far stronger than he had ever used when 
privatization was actually taking place.

Liesman was replaced by Andrew Higgins in July 1998, but he returned to 
Moscow in August to participate in the writing of a series of articles 
explaining how the crisis had unfolded. Apparently realizing he was on to a 
Pulitzer-caliber story, Liesman backed off every position he had taken in the 
previous two years and enthusiastically volunteered the new conventional 
wisdom: that the fundamentals for an Asia-plus meltdown had been there all 
along. In a prizewinning September 23 article co-written with Higgins, 
Liesman recounted grotesque anecdotes illustrating how Russia's crony 
capitalism was one of the fundamental reasons behind the country's collapse, 
concluding: "All the while, the government was going broke. It couldn't 
collect the taxes it needed to pay its bills. So it built a rickety structure 
of domestic and foreign debt, creating the pyramid that collapsed in August 
and pushed Russia into default."

What about loans-for-shares, which Liesman had lumped in with "the most 
successful and important of Russia's reforms"? At the time, he had dismissed 
critics of the auctions as Communists. But in preparation for the Pulitzer 
ball, Liesman and Higgins sneered that only a fool could have missed the 
overt criminality of the auctions:

Desperate for cash, the government mortgaged some of its most lucrative 
assets for a fraction of their real value in return for loans from a handful 
of bankers. Meeting in secret, they carved up the spoils. Government 
bureaucrats colluded in the so-called loans-for-shares deals, allowing 
ownership of the stock-in-trust to be awarded at rigged auctions.
There wasn't even a semblance of propriety. At a news conference in 
1996, a Menatep executive could hardly contain his laughter when he claimed, 
implausibly, that he didn't know who owned the subsidiary that had just 
bought Yukos, Russia's second-biggest oil company. Russian journalists, 
served cognac by the bank's staff, guffawed in disbelief. Menatep had run the 
auction and the bank, it would later disclose, controlled the firm that 
entered the winning bid.
None of the above, or even a hint of it, was in Liesman's coverage of 
loans-for-shares when the story first happened. And none of it was new news.

Pulitzer candidates, like defendants in murder trials, are ostensibly judged 
by what they did, not by who they are--character and past behavior 
theoretically being irrelevant to the jury's decision. In this case, Liesman, 
Higgins and the four other Journal staffers who won were judged by what they 
did in ten post-crisis articles, written between June and December of 1998.

But there are times when who a journalist is and what he does coincide. The 
record shows that Liesman's bureau was little more than a PR conduit for a 
corrupt regime, consistently averting its eyes from the ugly truth. It 
cleaned up its act just in time to win the most coveted award in American 
journalism. The Pulitzer committee, as a body composed of journalism experts, 
either knew of the Journal's past record and chose to ignore it, or was 
negligently unaware of the Journal's body of work on Russia. If the former is 
true, it's time to stop taking the Pulitzer Prize seriously as a 
standard-setter for the journalism profession. If the latter, the board 
should reconsider its award.


Date: Fri, 17 Sep 1999 
From: "J. Michael Waller" <> 
Subject: Russia Reform Monitor 683

Russia Reform Monitor, No. 683. September 17, 1999.
American Foreign Policy Council, Washington, D.C.

Adviser Sandy Berger has tasked a top aide to get U.S. business lobbies
to do damage control for its Russia policy. Sources tell Russia Reform
Monitor that the NSC director for Russia policy, Carlos Pasqual, is
approaching U.S. businesses and trade groups to enlist their help to
provide a "balanced picture" in the media. The hook is to dangle the
promise of future trade with the Russian Federation. The head of a
major business council was asked to write a letter to the editor of the
New York Times to tout the administration's accomplishments in Russia.


Los Angeles Times
17 September 1999
Keep Russia Probe Nonpartisan 

Russia's unfinished economic reforms have failed to stop the country from 
sinking into poverty, and the ever-unpopular government of President Boris N. 
Yeltsin seems unable to do anything about it. Added to the country's woes are 
recent allegations of corruption implicating Yeltsin himself and suspicions 
that Western aid has ended up going to Russian criminals. So it comes as no 
surprise that the U.S. Senate and House want to look into the matter. 
That's proper. It's time for the United States and other major countries 
to take a measure of Russia's corruption. Some leading Republicans are hoping 
to score early election points by turning the hearings into a partisan 
broadside at the Clinton administration's Russia policy. Others in Washington 
are urging that Russia be written off as a hopeless cause. But neither 
partisan finger-pointing nor "disengaging" from Russia would help. Rep. James 
A. Leach (R-Iowa), whose House Banking Committee will begin hearings Tuesday, 
struck the right tone when he said he does not want the inquiry to turn into 
partisan wrangling. Rather, he wants to focus on ways the West should respond 
to Russia's "kleptocratic situation" while continuing to support democracy 
Washington for quite some time has known that billions of dollars for 
Russia, from both public and private sources, vanish into foreign accounts 
each year, and the FBI has been investigating allegations that as much as $10 
billion has been laundered through the Bank of New York. The International 
Monetary Fund, which has pumped some $22 billion into Russia since 1991, has 
long been aware of the illegal diversion of money. Yet, up until the most 
recent revelations the Clinton administration had expressed unreserved 
support for Yeltsin. 
The Washington-based Institute for International Finance estimates that 
as much as $138 billion has fled the country since 1991. Most of that money, 
however, belongs to oil companies and other exporters trying to avoid paying 
Russian taxes or protecting their capital from economic uncertainty at home. 
Both the IMF and the U.S. Treasury said better safeguards are needed if 
new money is to flow into Russia. 
Despite its difficulties, Russia is a valuable partner to the United 
States on many fronts, and it will need financial help even though there's 
been a recent rise in industrial production. Aid will be a crucial element of 
the upcoming parliamentary and presidential elections. The congressional 
hearings should focus on how this can be done and not add heat to the 
incendiary debate on "Who lost Russia?" 


Zyuganov Says Yeltsin 'Absolute Evil' 

ST. PETERSBURG. Sept 16 (Interfax) - Communist 
Party of Russia leader Gennady Zyuganov has said he hopes the Federation 
Council will request Russian President Boris Yeltsin to resign at its 
emergency session on Friday. Yeltsin is "absolute evil. He cannot run 
anything and is mainly occupied with personnel reshuffles, starting from 
his administration to all the special services in the country," Zyuganov 
told journalists in St. Petersburg. Yeltsin "won't let anyone work. While 
he remains in that armchair, the country will continue to break up and 
reach its lowest point," he said. "We've reached this point now," he 
said. Commenting on his possible expulsion from the Popular Patriotic 
Union, Zyuganov said that the "movement is united, it has a clear program 
and a strong team." Vladimir Bogdanov, member of the union's Control and 
Revision Commission, had said earlier that Popular Patriotic Union leader 
Zyuganov might be expelled from the alliance. Zyuganov is confident that 
the Union will do well in the State Duma elections, "no matter what some 
people do or say."


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