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CDI Library > Johnson's
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May 2, 2000
Johnson's Russia List #4279 2 May 2000 davidjohnson@erols.com
[Note from David Johnson:
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The eXile www.exile.ru March 30 - April 13, 2000 Book Review Yeltsin: A Revolting Lie By John Dolan
Yeltsin: A Revolutionary Life by Leon Aron London: HarperCollins After reviewing so many well-meaning, badly-written books, it's a pleasure to dissect the work of a skilled liar. The liar in question is Leon Aron, the book is Yeltsin: A Revolutionary Life. Aron's book attempts a task which is, to borrow his favorite Classical allusion, "Augean": cleaning up the filth-dripping career of Boris Yeltsin. But though the task is, as he puts it, Herculean, Aron has one tremendous advantage: he is writing for readers who know very little about contemporary Russia. Only an audience deeply ignorant of Russia would stand for a biography of Yeltsin which in 750 pages makes only four brief references to Boris Berezovsky. Writing a Yeltsin biography which ignores Berezovsky is like writing a history of the Nicaraguan Contras without mentioning Oliver North. Yet Aron expects to get away with excluding Berezovsky from his story - and based on the reviews of this book by what passes for the American intelligentsia, he will succeed. Martin Malia has informed the readers of the Wall Street Journal that "whoever wishes to understand post-Communist Russia...must henceforth start with Mr. Aron's path-breaking book." The New York Times, gullible as ever, has termed Aron's book "a fine, full-blooded portrait of Yeltsin."
Sadly, very few of the readers who buy Aron's book on the strength of these endorsements will know enough about Russia to see the scope of the Big Lie Aron feeds them. They will end up believing that Yeltsin and his friends were doing God's work, or at least Adam Smith's - rather than divvying up the plunder of a fallen empire while its stunned, exhausted people were too busy trying to survive to put up any resistance, and whose hope and faith in a better, more just future had been coapted and perverted by some of the most bloodless, amoral nihilists-posing as free-market democrats-that the world has ever seen. Just taking the loans-for-shares scheme alone-a theft that even the IMF and World Bank have disavowed-it is estimated that at least tens of billions of dollars worth of state assets were literally given away to the oligarchs (and often times even paid for by stealing the unpaid wages of Russia's state workers and pensioners) for almost free. That alone would qualify Yeltsin as the greatest thief that mankind has ever known.
Aron has so little respect for his American readers that he actually attempts to tell them that the oligarchs aren't really such a big deal, that they're largely myth:
"...The secrecy in which the Russian robber barons cloaked their dealings resulted in a vast exaggeration of their wealth and power both by the Moscow rumour mill and by the resident correspondents of Western newspapers and television networks...The truth was further obscured by a deep suspicion of personal wealth...and by self-aggrandizing claims and accusations with which the perennially warring moguls puffed up their worth and which they hurled at one another through their media outlets."
Aron's prose slips a bit here, particularly in that last sentence. If the oligarchs are really so marginal, how is it that they apparently own all the "media outlets"? Or is ownership of the electronic media such a minor advantage? Aron simply dismisses other charges against Yeltsin without argument:
"...equally bizarre [is] the 'theory' that explained Yeltsin's dependence on the oligarchs by the gifts which they showered on his family - as if the President of Russia, should he decide to do so, needed intermediaries in raiding the country's treasury."
One would like to ask Mr. Aron exactly what is "bizarre" about this "'theory'." "Intermediaries in raiding the country's treasury" is a fairly exact description of the talents of Berezovsky and above all Chubais (whom Aron treats very delicately). It seems less than "bizarre" that Yeltsin, whose job was not to cook the books but to present a "democratic" face to the West while the cooking was in progress, would work with the leading embezzlers rather than carrying sacks of dollars out of the banks. He's not in that sort of condition.
The one figure of the 1990's who stirs Aron's bile is Yavlinsky, the least corrupt of all the "reformers." Quiz for non-Russian readers: explain why Aron hates Yavlinsky, of all people, so intensely. In 25 words or less. [Hint: Yavlinsky, as the only authentically democratic, untainted Western-style politician in Russia, and the part-Jewish leader of the fiercest opposition Duma faction, does WHAT to Aron's central argument that all those opposed to Yeltsin were crypto-fascist/anti-Semitic-Stalinist monsters?]
In whitewashing Yeltsin's astoundingly sleazy career, Aron leans heavily on his readers' worship of the free market and the power of the individual to transcend, even remake, the world around him. (In other words: successful Americans.) Playing on the paradigmatic narratives Americans absorb with their morning cartoons, Aron transforms young Yeltsin into a Siberian Abraham Lincoln, growing up in "...the Ural-Siberian tradition of diversity, acceptance and meritocracy." Yeltsin may not have lived in a log cabin, but as Aron points out, his grandparents did. As a boy, Yeltsin rambles in the woods, explores Siberian rivers and generally gets up to all sorts of Huck-Finn deviltry (blowing half his hand off while playing with a grenade, for example), but grows up to be the hardest-working, straightest-speaking construction boss in the history of Sverdlovsk, a totally (!), incorruptible workaholic who sternly rejects every attempt at a bribe or dubious gift. To give Yeltsin due credit, one must admit that he certainly transcended that provincial prejudice in later life.
Aron is at his best when his knack for hagiography has the fewest obstacles (ie facts) to overcome. This means that his early chapters about Yeltsin's life in Sverdlovsk are his best. When Boris is summoned to Moscow-his drive and goodness recognized at last - Aron's task becomes much harder.
Aron has two strategies for wrestling his readers into respecting Yeltsin. First, he uses his early chapters to paint the Soviet system so black that a naive reader will accept any change as an improvement. In the process he makes Yeltsin's task literally Herculean - and I mean literally: Aron consistently compares Yeltsin's tasks to the labors of Hercules, above all to the cleaning of the Augean stables. (Though, in a momentary lapse, he fudges a bit by describing Yeltsin as "both Augeas and Hercules" - that is, the man responsible for the mountain of dung, as well as its remover.)
Aron's not shy about enlisting a plurality of Classical heroes, either. When Hercules tires, enter Sisyphus. Here is Aron's depiction of Yeltsin after he has been rebuked by the CPSU:
"Yeltsin sat on the dais, motionless, his head in his hands. The monstrous boulder that he, day and night, had pushed up, up, up the steep slope, through briars, his hands cut and bleeding, his knees in muck, his sides bruised and his heart strained - had finally crushed Sisyphus."
If I may resort to the argot of my native malls: what crap. The torture to which Yeltsin has been subjected is no more than a public scolding by his fellow apparatchiks, to which Yeltsin reacts not by standing up for his rights in Lincolnesque fashion but by groveling, as Aron admits, "like a star defendant of Stalin's show trials in the 1930's." And Yeltsin, when challenged, shows that he can grovel with the best of 'em:
"I am very guilty before the Moscow party organization, very guilty before the GorKom, before the buro, before all of you and, of course, I am very guilty before Mikhail Sergeevich Gorbachev, whose authority is so high in our country and in the whole world...."
But Yeltsin groveled, not before Stalin but...Gorbachev! It's no shame to grovel before Stalin - God would grovel before Stalin - but to react to a tonguelashing by his doddering epigones of 1987 vintage, as Yeltsin did, is hardly Sisyphus-level heroic endurance.
Aron's other strategy for rehabilitating Yeltsin is simple old Russophobia. He says outright that Yeltsin's opponents are anti-Semitic fascists, and offers several grotesque cartoons out of Zavtra as evidence. In other words, Russians who objected to seeing their jobs, their savings, their country whisked away; who were bothered by the starvation and entropy of the countryside; who found it suspicious that every item of value in the former USSR had passed, somehow, into the hands of a dozen master embezzlers; that all these people were no more than Jew-baiting racists. Now that is what Dr. G. used to call the biiiiiiiiiiig lie. 900 pages of it. Now that's big.
The only remaining issue for the reader is guessing how big was Aron's compensation package for producing this shameless encyclopedia of court flattery. We'd bet that it was real big. And judging by the early reviews, it was money well spent.
Check out Dr. DolanÆs new book, "Poetic Occasion From Milton To Wordsworth" published by St. MartinÆs Press, or order it on amazon.com .
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New Statesman (UK) 1 May 2000 [for personal use only] Is Putin fomenting a Holy War? By Christian Caryl (110317.1466@CompuServe.COM) Russia's Muslims are a heterogenous group. But the war in Chechnya is straining their loyalty, writes Christian Caryl
You might be forgiven for thinking that Vladimir Putin was the scourge of Islam after his recent visit to London, when his remarks about the war in Chechnya stirred up a flurry of protest in quarters ranging from the Tories to UK Islamic leaders. "We have seen European countries and European leaders not able to support the Russian struggle", said Putin, "because they are afraid of a reaction among the Muslim inhabitants of Europe, but that should not be their conclusion." He urged Europeans to "wake up" to the threat of "fundamentalist extremists on their borders". In his view, militant Islam is mushrooming in central Asia, the Caucasus and Europe. But, he warned, "so far, Russia is fighting alone".
If one is to take these remarks seriously, Putin would like to see an international military campaign against extremist Islam, one that would unite European (presumably meaning "Christian") countries in a sort of new Crusade to cleanse the world from a monolithic threat.
Putin's admonishments, widely quoted in the British press, were played down by the Russian media. They preferred to repeat, days after the event, a different remark made by the Russian president at the same press conference: "We will observe human rights. We are not fighting against Muslims and Chechens, we are not enslaving Chechnya, we are liberating it from terrorists."
Russian journalists have good reason to tiptoe around their president's more divisive remarks on the Muslim question - namely the 20 or so million believers in Islam who live within the Russian Federation. Out of Moscow's total population of eight million, around one million are members of the faithful; Muslim Muscovites like to claim that they live in the most Islamic city in Europe.
The Chechens make up only a small fraction of the Muslims who live in Russia. Most are Tatars, Turkic-speakers concentrated in a swathe along the southern reaches of the Volga River where they have lived for thousands of years. In the North Caucasus, the other Russian focal point of the faith, Chechens are but one of a mixed basket of various Muslim peoples. Muslims can be found across the length and breadth of the country. The geographical and cultural heterogeneity prevents them from acting as a bloc. Most Tatars subscribe to the moderate Hanafi school of mainstream Sunnism; there are Tatar intellectuals who like to boast about their people's role in developing an undogmatic "Euro-Islam". The Bashkirs, former nomads who inhabit the Siberian plains farther east, profess an Islam that contains elements of steppe shamanism.
Caucasians, in turn, are steeped in Sufi traditions. Even within families, there can be broad differences in practice and belief. Younger Tatars who live in cities mix with non-Muslims, attend mosques where women are allowed to pray and eat pork, while their parents may live in villages with rigid Koranic observances and mosques that women may not enter. During the Soviet period, the few rudimentary Islamic institutions that existed were controlled tightly by the KGB, and Russian Muslims were cut off from fellow believers in other parts of the world. As a result, the cultural and ethnic differences among Russian Muslims today tend to override religious unity. That came through with startling clarity during last summer's little war in Dagestan, the Muslim republic adjacent to Chechnya. When several groups of Chechens invaded the republic under the banners of radical Islam, they were repulsed by the combined forces of the Russian army and Muslim Dagestani militias. A major divide within Chechnya itself runs between the separatist government headed by President Aslan Maskhadov, who until recently was claiming the allegiance of several radical Islamist warlords, and the Mufti of the city of Gudermes, Khozh-Akhmed Kadyrov, who criticised Maskhadov for, among other things, adopting elements of sharia law alien to the spirit of the Chechen people. And it is quite common to hear other Russian Muslims - particularly from areas bordering Chechnya - badmouthing the Chechens. In that respect, they have something in common with their non-Muslim co-citizens, whose historical hatred of the Chechens, stoked in the mid-1990s by the humiliation of the first Chechen defeat and the years of Chechen-orchestrated kidnappings that followed, has now reached a white-hot fury.
But when terrorists set off a series of devastating bomb attacks in Moscow and other Russian cities last year, the wave of popular fury that resulted extended to all Chechens (regardless of their individual attitudes to the independence question), to virtually anyone who looked like he might be from the Caucasus and to Muslims in general. Madina, a Tatar housemaid in Moscow, says: "It's not easy. On TV, they show pictures of the Chechen fighters at prayers, and everyone sees those pictures and says, 'ee, they're Muslims'." Because her appearance doesn't correspond to the average Russian's picture of what a "Muslim" should look like, Madina says that she often finds herself listening to tirades directed against her fellow believers. "Officially, it's not supposed to matter what religion you are now," she says. "But most Russians just assume that you're Orthodox."
Alexei Malashenko, a leading Russian scholar of Islam, speaks of burgeoning "Islamophobia" in Russia. In a poll taken in 1992, says Mala-shenko, 17 per cent of respondents said that Islam was a "bad thing". In a more recent survey of young Russians, the figure was 80 per cent. Such underlying tensions might help to bring about what Putin ostensibly aspires to avoid - the politicisation of Russia's Muslims. He clearly understands the political import of religious feeling in a way that Boris Yeltsin did not. "Yeltsin was a party bureaucrat," says Malashenko. "Putin is younger and more sensitive to the problem. He knows that there can be tensions between Muslims and Christians. He doesn't have an approach or a policy. But he has a feeling that it deserves attention."
His solution, says Malashenko, has been to promote a "loyalist" Islamic movement that would give Muslims a political voice. During last year's parliamentary elections, Putin's entourage even sponsored the creation of Refah, an Islamic party that now claims the allegiance of a dozen deputies in the 400-member State Duma.
Such attempts to co-opt Muslim aspirations clearly have limits. Last year, during the war in Kosovo, Mintimer Shaimiyev, the president of Tatarstan and one of Russia's most influential regional leaders, criticised attempts by Russians in the republic to recruit volunteers to fight on the side of the Serbs. That could lead, he warned, to a reaction among Tatars, who might take up arms with the Albanians - a tendency, he said, that could end with Russian boys killing other Russian boys in the Balkans.
That's why Putin and his entourage never lose an opportunity to blame the war in Chechnya on the nefarious activities of Osama bin Laden, the Turkish secret service, and "Arab mercenaries". Putin has gone much farther than Yeltsin would have ever dared did in emphasising the "international" aspect of the conflict. When I visited Chechnya last December, Russian soldiers assured us that the enemy forces even included kilt-clad Scotsmen - evidently members of a hitherto unknown Islamist group based in the Highlands.
Putin hopes that the strategy will pay off on several fronts. He can dampen western criticisms by invoking the bogey of the Islamist threat. He can reassert Russian influence in central Asia by promising support to regional leaders facing fundamentalist threats of their own. And, above all else, he can use the threat of an "external enemy" to consolidate Russian society around him.
The question is, how long will Russia's Muslims be prepared to go along with the team?
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INTERVIEW-Gore sees possible give by Russia in amending ABM By Thomas Ferraro
WASHINGTON, May 1 (Reuters) - Vice President Al Gore said Russia understands why the United States wants to amend the 1972 Anti-Ballistic Missile (ABM) Treaty and is hopeful Moscow will lift its stated opposition.
Gore said he is encouraged that Russia now at least recognises the value of limited new defence systems that could protect it and the United States from attack by rogue forces.
``Publicly, they are completely hard line'' against renegotiating the ABM, said Gore, who has been a point man in U.S.-Russian relations.
``But there is clearly an understanding by them of why this sort of system would be very valuable to them because there is a new awareness on their part of the potential threat they face to their south with extremists groups,'' he said.
Gore made the comments in an interview with Reuters in Boston on Sunday night after giving his first major foreign policy speech since become the presumptive Democratic presidential nominee in March.
Russia has insisted it has no interest in renegotiating the ABM, a Cold War pact designed to curb the arms race. Moscow has suggested there are other ways to deal with rogue states, such as moving to prevent them from getting nuclear arms.
Gore, in his foreign policy speech, spoke of the need to engage ``vital partners,'' like Russia and China, and be prepared to stem nuclear threats from rogue states.
REMAINS OPTIMISTIC
In his interview, the vice president said he remains optimistic Russia will sign off to some changes in the ABM to permit for limited national defence systems.
``I hope to see an agreement between the U.S. and Russia on modifications to the ABM treaty that ... allows a more limited approach that can protect our country and theirs against a half-dozen or so missiles or fewer launched by some rogue state,'' he said.
On other matters, Gore said despite complaints to the contrary, he has made a concerted effort to win congressional approval of proposed permanent normal trade relations with China.
``I have made numerous speeches and given numerous interviews expressing my views'' in favour of it, Gore said. ``I have made numerous telephone calls to members of the Congress.''
``I called (Commerce) Secretary (William) Daley a week or 10 days ago and asked him for more assignments: 'Is there anything more I can do to help,''' the vice president said.
Gore he expects the trade proposal to obtain congressional approval, but ``it is going to be a hard, close fight.''
ABM COULD SURFACE AT SUMMIT
The question of amending the ABM to allow for limited national defence missile system was expected to be a topic of discussion at the U.S.-Russian summit set for June 4-5 summit in Moscow.
The ABM, signed by the United States and the Soviet Union in the the midst of the Cold War, has become the cornerstone of international arms agreements.
To go ahead with a new national defence system, the United States must get Russia to agree to change the treaty or withdraw from the treaty itself.
Toward this end, Gore called on Republican rival George W. Bush to ask Senate Foreign Relations Committee Chairman Jesse Helms, a North Carolina Republican, to drop his vow to prevent ratification of any new arms treaties until a new president takes office on Jan. 20, 2001.
``If he (Bush) is truly interested in bipartisanship and comity in foreign policy,'' the Texas governor should make such a request, Gore said.
Gore charged Helms as well as Bush complicated the upcoming U.S.-Russian summit with stands they staked out last week.
While Helms vowed to block any treaty changes during Clinton's final months in office, Bush reiterated his desire to develop a massive ``Star Wars'' defence system.
Gore noted many critics see a comprehensive ``Star Wars'' system as too costly, technologically implausible and even destabilising.
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Date: Mon, 01 May 2000 From: Vlad Ivanenko <vivanenk@julian.uwo.ca> Subject: Helmer on Illarionov/4277
Usually I agree with what John Helmer writes and his last piece on Andrei Illarionov as a wooden cuckoo is no exception. Yet, I need to add that if Illarionov is not quick answering on an economic question to a general audience, it is not a big deal. No economist can do that, albeit Western advisors are more experienced covering their ignorance with smooth words than Illarionov apparently is.
The more problematic is the list of experts that he cites. I venture to guess that they are hired by the IMF. The Fund employs plenty of economists of Latin-American origin who have local expertise bound for export, e.g. Chilean pension reform. Accidentally, Chileans appear in Moscow at the same time as the proposition is discussed. One might recall the handy appearance of a former Argentinean finance minister in the Russian capital after the proposition regarding the Argentinean-type currency board was floated in Russia after the August 1998 crisis. New Zealand is famous for its excessively strict attempts to squash inflation in the early 1990s and the IMF would be pleased to hear something similar to be tried by Moscow. It would be informative to learn what is the source of funding for these experts to travel to Russia. I do not suggest any conspiracy theory but I do believe that those who have more money are better positioned to promote the message they want.
They say that, unlike Gaidar who is awash with money and can generate numerous papers (including prepared for Gref's center), Illarionov does not have his own think tank (the center he runs is small) and needs to rely on the work of the others. If this is true the selection of "experts" who have access to Illarionov becomes a proxy fight for the now famous Putin's ear (which has been surely exposed to such cacophony that only a deaf person could work comfortably in that environment). Maybe, appointing Illarionov as his "advisor", Putin has simply shielded him from the noise emanated by would-be presidential economic advisors who have to concentrate on Illarionov instead.
Vlad Ivanenko, Ph.D. candidate in economics University of Western Ontario
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From: "Francis Menezes" <Francis.Menezes@mail.house.gov> Subject: Statement by Representative James A. Leach Date: Mon, 1 May 2000
Dear David,
I am a staff member of the House Banking and Financial Services Committee. On April 25, 2000, Representative James A. Leach, Chair of the House Banking Committee gave a speech before the Financial Academy in Moscow, Russia. If there are any questions, contact either David Runkel or Brookly McLaughlin in the Press Office at (202)-226-0471. The Banking Committee's website is http://www.house.gov/banking/.
Sincerely, Francis A. Menezes Committee on Banking and Financial Services 2129 Rayburn Building Washington, D.C. 20515 (202)-225-2258 ------
Statement by Representative James A. Leach Chairman, Committee on Banking and Financial Services U.S. House of Representatives Before the Financial Academy Moscow, Russia April 25, 2000
Let me say at the beginning how honored I am to be invited to speak before this distinguished institution.
I come as Chairman of the House Banking Committee, but principally as a member of a legislature, which we in America call the people's body.
I would like to focus my remarks today on three issues: the importance of a strong intermediary financial system to national well-being; the common threat America and Russia face from the danger of money laundering and capital flight; and the future of the U.S.-Russian relationship, particularly at the people-to-people, rather than the government-to-government, level.
In your country as in ours, the start of a new presidential administration is a time of renewal. Coupled with what appears to be greater economic stability and the prospect of some economic growth this year, thanks in part to strong oil prices, this is a propitious moment to discuss the importance of strengthening Russia's banking and financial system.
I have not come here to tell you how to organize or regulate your banks. Attempts to overlay the system that works in one country onto the practices of another country are presumptuous and almost always result in failure. After all, no two economic systems and cultures are the same.
But in the free-market world of finance, there are some universal principles without which a banking system cannot thrive, and without efficient banks and capital markets, economies simply cannot grow to their potential. What are these universal principles? Universal Principles
One. There must be a commitment to provide a place of safety for savers to put their money, and a place for borrowers to receive credit at non-usurious rates commensurate with market risk. For this to happen, the public must be convinced that their savings will earn a competitive interest rate and have certainty that it will get its money on demand. As many of you probably know, at the apogee of the Great Depression in the U.S. many banks failed and many families lost their savings. We restored the public's confidence in the banks with a government agency - the Federal Deposit Insurance Corporation - that today insures every deposit up to $100,000. To qualify for this insurance, banks must meet rigorous capital and regulatory standards and submit to regular examinations and audits.
Trust is the hallmark of any viable banking and financial system. It cannot be obtained unless standards are above reproach and there is an assumption that financial institutions have as their mission protection of the saver and advancement of the economy.
In this regard, it would appear in recent years that rather than recycling the saved dollars of the public into entrepreneurial loans for small business and housing, too many Russian banks have used the public's funds to concentrate assets in their own names and transferred monies out of the country, sometimes out of an understandable desire to protect against inflation, sometimes as an effort to evade the law or protect ill-gotten gains. But whatever the reasons, the Russian economy cannot grow unless the people are allowed to control their own destiny and this cannot occur with reliance on foreign investment to replace capital flight.
Two. There must be financial diversity. People from outside Russia frequently point to the need for the country to develop laws and protections to encourage foreign investment - and I share their concern - but I also believe that of particular need in Russia today is the establishment of indigenous institutions to provide small business and micro-credit loans. Healthy economies have a variety of institutions from credit unions to money center banks, from securities firms to insurance companies, each tailored to market niches.
Having alternative means to channel an economy's savings into capital investment expands competition to the benefit of consumers and offers a set of backup facilities should the primary form of intermediation fail. During the global financial crisis of the summer of 1998 in the United States, for instance, banking displaced part of the capital markets while in the U.S. Savings & Loan crisis of the 1980s, and in the Swedish banking crisis of 1992, the capital markets, largely unaffected by a decline in real estate prices, were able to substitute for a reduction in financial intermediation from traditional sources.
Three. Prompt corrective action is preferable to deferring financial accountability. The speed with which the Swedish banking system overcame its crisis in the last decade offers a telling contrast with the prolonged difficulties of Japan, whose financial system is hallmarked by the dominance of bank lending and keiretsu conglomeration.
Four. There must be capacity to interact with the world on a trustworthy basis. Banks have to serve domestic depositors and borrowers, but in today's economy they must also interact with globalized institutions. There can be no credible interaction unless and until a system of regulation characterized by transparency exists. A challenge for the U.S. as well as Russia is to review the role of off-shore jurisdictions, such as in the Caribbean and South Pacific, and the question of whether countries which lack prudential regulation and cater to ill-gotten assets should be used by or have access to the banking systems of advanced societies. Banks must not become silent accomplices to attempts to circumvent the law.
Five. A strong financial system requires a strong independent central bank. Arguably, the most innovative institutional step taken by America in the 20th century was the establishment in 1913 of the Federal Reserve System. The delegation by Congress of monetary policy and certain bank regulatory authority to the Federal Reserve was a recognition that legislative bodies didn't have the professional capacity to deal on a daily basis with modern finance and a reflection that monetary policy and bank regulation should be above politics.
During the Cold War, when national security was the central concern, secrecy in certain areas may have been of paramount importance in protecting a country's citizens. Now that economic issues have become paramount, transparency holds the key to protecting individual citizens.
Six. There must be a credible legal framework to protect property, contracts and, in the securities area, the rights of minority shareholders. Seven. Conglomeration of banking and finance ill serves the public. One of the lessons of the banking and financial crises of recent years is that difficulties in an economy are magnified when banks, instead of serving as neutral providers of credit, are involved in commercial investments.
Last year, I shepherded a law through Congress, the Gramm-Leach-Bliley Financial Services Modernization Act, that overturned legislation that shaped the U.S. financial services industry throughout much of 20th century. This new legal approach removes restrictions placed on commercial banks in the uncertain days of the Great Depression and allows banks to expand into insurance and securities activities. But while expanding the scope of financial activities banks are authorized to enter, this new modernization law strengthened the divide between commerce and banking and precludes banks from intertwining with commercial companies.
I favor an independent banking system and healthy, vibrant competition within finance, but not a system that leads to an unseemly concentration of asset ownership.
I see no economies of scale and no benefit to the consumer if, for example, Citigroup were allowed to merge with General Motors and Wal-Mart in the United States. On the other hand, there are economies of scale that can be developed when a commercial bank is allowed to offer securities and insurance services, and vice versa. The recently passed Financial Modernization bill is a three-way street for competition within the financial industry. It is also a road-block to the kind of cross-ownership that characterizes the keiretsu model of Japan, and the banking and commerce model that has developed on parts of the continent, which has stultified aspects of the German economy and cost the Spanish and French as well as American taxpayers in the S&L crisis billions of dollars to rescue banks which imprudently thought they could invest in and manage well commercial enterprises.
During America's "Gilded Age" in the late 19th and early 20th century, a dangerous concentration of economic power developed and the federal government generally aligned itself with big business. But in 1902, a Republican president named Theodore Roosevelt took the offensive against powerful corporate trusts. He convinced Congress to create a Bureau of Corporations to regulate big business, then shocked the nation by bringing an anti-trust suit against J. P. Morgan's Northern Securities Corporation. Regulating the great business trusts to foster fair competition without socializing the free enterprise system was one of Roosevelt's primary concerns and great legacies. Even in today's fast-moving "new economy," the U.S. government is wary of power concentration, as shown in the legal challenge against the Microsoft software empire of Bill Gates.
Bank Scandals and BONY
Let me say a few words about the Bank of New York. I know this case has been the subject of interest and concern here. Last September when the House Banking Committee met to consider issues relating to the global money laundering threat - which the IMF quantifies as 3 to 5 percent of world GDP, a matter of at least $600 billion a year - our focus was on allegations of suspicious transfers of funds from Russia to accounts at one of America's oldest and most venerated financial institutions, the Bank of New York.
Questions have been raised whether illegalities occurred in these transfers.
This February, the Federal Reserve and New York State Banking Department took supervisory action against the Bank of New York requiring it to implement new procedures for detecting suspicious activity. These were plainly lacking during the three-year period in which some $7 billion flowed through its accounts from dubious Russian sources. Well over half of these funds were at some point wired through the island Nauru, a speck in the South Pacific with a population of 11,000 people never known until now as a financial center. More recently, Lucy Edwards, a former BONY executive and her husband, Peter Berlin, plus another BONY accomplice, entered guilty pleas in federal court to a variety of charges, including conspiracy to commit money laundering and aiding and abetting Russian banks in conducting unlawful and unlicensed banking operations in the United States.
The House Banking Committee is focusing on the Bank of New York scandal because it is my belief that this matter raises fundamental issues, including the extent to which access to the Western financial system has contributed to the impoverishment of the Russian people. Processing transactions involving the proceeds of crime, corruption and law evasion, including the avoidance of taxes and customs duties, invoke the specter of large-scale disregard for civil governance. The possibility of infiltration of the American financial system by corrupt enterprises abroad is not a threat that Congress can ignore and the probability that this capital flight is destabilizing the economy of a great country, our most important ally in the greatest war of the 20th century, is disturbing. The deputy chairman of your central bank was quoted in the Washington Post as estimating that in 1998 alone, $70 billion was transferred from Russian banks to accounts of banks chartered in Nauru. Nauru's banking system, characterized by draconian secrecy laws and minimal regulatory oversight, was described in a 1999 State Department report as extending "an open invitation to financial crime and money laundering."
For many, money laundering is a seemingly modest offense. But in reality it reflects deeper problems in society and opens a window into greater crimes that can have serious geopolitical as well as economic ramifications. The Bank of New York case highlights the need for a U.S. foreign policy aligned with the interests of the Russian people, not a commercial elite of either country. The goal should be to insist that the laws of Russia are returned to the people.
Recent years have witnessed the mushrooming of conflicts of interest involving monetary elites in all countries. But some progress has been made in introducing transparency and openness into the offshore financial sector, and several jurisdictions previously notorious for offering safe haven to criminal proceeds have executed Mutual Legal Assistance Treaties with the U.S. authorizing the exchange of information and evidence in criminal investigations. A growing number of offshore jurisdictions have enacted meaningful anti-money laundering statutes that conform to internationally recognized standards. However, even with laws on the books, there remains a serious question as to whether there exists either the political will or the legal infrastructure to enforce those laws, particularly given the sheer volume of activity being conducted offshore. For financial crimes to be properly pursued cooperation is needed in all jurisdictions. For instance, in the Bank of New York as well as the Mabetex case, prosecutors require key evidentiary material that exists principally in Moscow. Given the wealth transfers of the past decade and the attendant capital flight few countries have greater self-interest in asserting claims to stolen assets than Russia.
Hence, it is troubling and ironic that the U.S. Department of Justice is having difficulty getting full cooperation from Russian counterparts.
Further complicating the international anti-money laundering effort is the dynamic nature of the offshore market. No sooner does one jurisdiction commit itself to meaningful counter-measure against money laundering than another pops up in some other corner of the globe to service the business flushed out of the first locale. Indeed, in recent years, U.S. authorities have noted a migration of unsavory operators from havens in the Caribbean to remote islands in the South Pacific - such as the aforementioned Nauru - that did not even register on their collective radar screens five years ago.
It is self-evident that in an independent global economy with fewer and fewer barriers to capital flows, an international anti-money laundering regime is only as strong as its weakest link. Accordingly, the U.S. and its allies in the anti-money laundering fight have little choice except to embrace multilateral and bilateral strategies designed to encourage jurisdictions that have been "missing in action" in this fight to adopt the necessary legal reforms and dedicate the necessary resources to supervising their financial sectors.
The kinds of legislation that countries like Russia may well want to consider are prohibitions against monies being deposited in jurisdictions which lack credible regulatory standards. Indeed, a case might be made, as in many western countries, that public officials should be given incentives to make their own systems work and be barred from holding foreign bank accounts. On the assumption that public service must be about idealism rather than self enrichment and that the public interest should not become co-mingled with private interests, such policies might represent a trust-building step. I don't know the salary schedules of Duma members and senior civil servants, but sight unseen, I would urge a doubling on the condition that their savings be invested at home rather than abroad.
Russia's New Opportunities
America's founders were moral philosophers as well as political activists. To ensure democratic accountability, they recognized the frailty of human nature and bifurcated and decentralized political power.
Following Montesquieu, they established a checks and balances system in which tension would exist and power would be split between Congress, the president, and the courts. This federal system of checks and balances was then duplicated at the state level and again at the county and city levels, where power was substantially devolved. And then through custom, a private versus public sector check came into being with the citizen assumption that no one could actively run a business and also hold a significant government job. Self-interest and public interest were not only deemed incompatible, but running businesses and the government at the same time was considered beyond the ability of any one individual. Now we are in a world where geo-economics is fast displacing geopolitics as the driving force of social cohesion or disintegration. The role of government is to protect people, establish and implement fair laws. The work of the private sector is to maximize economic opportunity in such a way that society benefits. Extraordinarily, issues of war and peace as well as economic development are more and more influenced by private sector actions. The business community can bring people together in positive and respectful ways in all reaches of the earth or, instead of becoming the glue, business - particularly the financial sector - can become the tool of international criminality, exacerbating tensions between peoples and states.
It is the duty of public officials in all countries to see that the first scenario comes to pass and that the second does not. The most propitious way to establish free and fair markets is to establish credible law and order at home and then, to the degree possible, build up international law. In the area of trade, the rules that were gradually developed during the GATT rounds that commenced under President Kennedy and that are now the province of the World Trade Organization (WTO) would appear to be benchmarks for modern states. Russia should aspire to the establishment of a system at home which can lead in short order to normalized trade relations with all countries - as symbolized by WTO membership.
John Locke, the English philosopher who so profoundly influenced Jefferson, once noted that what distinguished civil society from a state of nature was the existence of rules to govern disputes and third party arbitration. The focus must remain on law, its fairness, and implementation.
In recent years, Russia has witnessed a dangerous concentration of economic power that not only jeopardizes its people's dreams for a better standard of living but also makes society vulnerable to the return of repressive politics. What is needed today is a new balancing in society in which political democracy is matched with open, competitive markets.
It took three-quarters of a century for the Duma to replace the Supreme Soviet in the political realm. Neither Russia nor the world can afford so lengthy a transition from oligarchic to competitive free markets.
The rationale for the House Banking Committee's hearings on the Bank of New York stems not only from its oversight responsibility over U.S. bank regulatory agencies and the International Monetary Fund, but my personal conviction that a key goal of U.S. policy should be to shine the spotlight of accountability on the growing problem of corruption in international finance and endeavor to help return looted wealth to the Russian people.
I first used the term kleptocracy in the mid-1980s in relation to the late Philippine dictator Ferdinand Marcos, his secret ownership of certain property in New York City, and the eventual discovery that his family had plundered the Philippines and transferred several billions of dollars of looted assets abroad. No economy can prosper for long in such a system of crony capitalism, nor can it long be tolerated by the people. The fact that subsequent Philippine governments have filed valid claim to Marcos family assets may be of some relevance to the BONY probe. There is no desire in Congress to embarrass Russia; our inquiries are simply designed to shed light on international financial crime and, to the degree possible, cause any monies stolen from Russia to be returned. In this circumstance care must be taken to recognize that there is a distinction between money laundering and money transferring and that many Russian customers of BONY and many senior bank officials are not guilty of any criminal behavior.
Here it may be relevant to point out certain aspects of 18th century American and 20th century Latin history. As you may recall, the fledging American Republic experimented for almost a decade with a weak executive under what we called the Articles of Confederation. Upon ratification of the Constitution a common market as well as political union between the states was established. The practice of putting levies on the products of states by other states was prohibited, and while tariffs were countenanced with other countries, free trade was established internally in a world in which external trade was minimal. Today in a more globalized economic setting the U.S. has prospered on the general basis of free trade and while angst exists in the American public as in all publics about competition, sometimes unfair, from afar, the assumption is that free trade leads to higher standards of living than systems based on political isolationism or economic autarky.
Protectionism is particularly harmful in the credit, securities, and savings industries because the general economy is so dependent on each. Hence, it is instructive to note that in the U.S. today approximately one-fourth of banking assets and one-third of commercial loans are made by foreign entities. We consider foreign financial competition good for the American economy and believe it is even more so in developing countries where individuals and companies often have no place to safely deposit their savings or seek prudential lending and capital assistance. One of the extraordinary advantages to many countries in welcoming foreign financial institutions is that those institutions come under the laws of their own as well as the host country. Hence, complex legal and other regulatory standards apply to foreign firms even if they do not have to be universally followed by their domestic counterparts.
As for Latin America, much has been written in Russia about aspects of the Pinochet model. Actually the Latin models from which the most relevant lessons exist relate to the concentration of wealth, corruption, and capital flight problems of so many Latin countries in the last century. Capital flight in many circumstances is not illegal and attempts to artificially constrain it often don't work, but no society can prosper and grow if wealth and savings are diverted to safe havens abroad. It deserves stressing in this regard, that while money laundering is the principal legal issue from an American perspective in the BONY case, money transfers - i.e. quasi-legal capital flight - is the larger problem for Russia.
Societies that allow concentration of wealth and don't establish democratic institutions and provide legal protections for average citizens are particularly vulnerable because those who come to disproportionately control assets realize they are subject to revolutionary change and propensity to confiscation.
For free markets to work people must have confidence not only that government may be changed only through the ballot box but that its governors, in the words of Lincoln, "are of, by, and for the people." Elections alone do not define democracy. To maintain democratic legitimacy, governments must be understood to be servants of the people, rather than power brokers for a new oligarchic class.
Conclusion
History, particularly Russian history, has taught us that a great people can rise and face extraordinary hardship, particularly if inflicted by a foreign invader. But society is easily demoralized and splintered if disillusionment develops internally with leaders who lack trust and laws which are not equitably administered. Few countries on the planet have greater potential or greater opportunity than Russia today. Early actions in a new Presidency may be particularly meaningful, as exemplified in the approval of both the START and Test Ban treaties. But while Franklin Roosevelt produced a 100-day model, his was the only American presidency which successfully undertook such comprehensive initiatives in such a short period of time. The challenges for President Putin and the new Duma will be to lead forthcomingly now and sustain momentum for the longer term. Symbolic tokenism and scapegoating will not suffice.
>From an outside perspective it appears that Russia's future is in the balance. The question of whether communism will simply give way to corruptionism is the fundamental challenge that must be addressed. The revolutionary struggle to root out corruption may be more difficult than overthrowing communism because avarice is a more fundamental aspect of human nature than the Marxist precept that people are subject to historical forces beyond individual control.
There are many types of political systems chronicled in Western thought since Aristotle. But history provides no model of a sustainable system where corruption becomes endemic. Compromise is possible on most political issues but on integrity there can be none. Given that Russia, like America, is an expansive frontier country, analogies to the Wild West are much in vogue. At the risk of exaggeration, from the outside it appears that the principal differentiation is that in Russia today the outlaws may be running rather than robbing the banks and the sheriffs may be controlling rather than reporting to the politicians.
The Putin Administration and the new Duma have one of the most notable opportunities in human history to begin anew and write from scratch on a slate that was besmirched in the 20th century by totalitarian repression, jeopardized by Nazi invasion, and subverted in recent years by a kind of robber capitalism. The heroic people who repulsed Hitler's army at Leningrad and drove the Wehrmacht back to the Elbe where they were met by General Patton and a regiment led by my father; the people who suffered under Stalinist purges and bravely demanded systemic change, deserve the decency of a new era of honest, individual-rights centered government.
Few people suffered more in the past century or deserve a better fate in this one. I come from the American people's House simply to underscore that Americans and Russians have common interests and common dreams. We are on the side of the Russian people. We want you to succeed.
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Web page for CDI Russia Weekly: http://www.cdi.org/russia
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