#14
Sovershenno Sekretno
May 6, 2003
FRAUD OF THE CENTURY
IMF loan money could not have vanished without Mikhail Kasianov's knowledge
Author: Avrora Potemkina
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

IN THE WEST, THERE WAS IMMEDIATE TALK OF RUSSIA'S ECONOMIC COLLAPSE IN 1998 HAVING BEEN A CAREFULLY-PLANNED FRAUD. IT WAS HARD TO DRAW ANY OTHER CONCLUSION, SINCE IMMEDIATELY BEFORE THE DEFAULT THE RUSSIAN GOVERNMENT HAD RECEIVED $4.8 BILLION FROM THE IMF. THAT MONEY DISAPPEARED.

The default of 1998 had economic and social consequences many times more severe than those of the Great Depression, America's all- time worst financial disaster. In the aftermath of the stock market crash in 1929, 1.5 million Americans lost their jobs - around 1.2% of the US population at the time. But the crash of 1998 left 11.3 million Russian citizens out of work - 7.7% of the population. And those who kept their jobs saw their wages fall by an average of two-thirds, from the equivalent of $160 to $55 a month. Around 40% of Russian citizens found themselves living below the poverty line (which had been deliberately understated in official statistics even before that). By the third year of the Great Depression, the GDP of the United States had shrunk by one-third. Russia's GDP fell by two-thirds in six months, from $422 billion to $132 billion.

In the West, there was immediate talk of Russia's economic collapse having been a carefully-planned fraud. It was hard to draw any other conclusion, since immediately before the default the Russian government had received $4.8 billion from the IMF - the first installment of the biggest loan in Russia's history, totalling $17.1 billion.

The IMF was greatly alarmed. It demanded that the Russian government order an external audit of the Central Bank. This task was given to PricewaterhouseCoopers, one of the most authoritative auditing companies in the US. PWC presented its report to the IMF board of directors on July 9, 1999. It is difficult to obtain a copy of that report now. Viktor Gerashchenko, then-chairman of the Central Bank, desperately opposed making it public. The question was decided by the president of Russia. The report was posted on the IMF website on August 5, 1999; but by September 4 it had been deleted at the request of PWC.

On July 29, 1999 - six days before the report was published - IMF deputy executive director Stanley Fisher held a news conference to announce the major result: the auditors had found no evidence that the last loan installment had been stolen. However, he did accuse the Central Bank of deliberately deceiving the IMF: the Central Bank had exaggerated its currency reserves by $1.2 billion. This misleading figure was reported during presidential elections in Russia, between the first and second rounds of voting in 1996, when Communist leader Gennady Zyuganov was Boris Yeltsin's sole remaining rival. When asked whether Russia's political leaders had been involved in the deception, and to what extent it may have been politically motivated, Fisher replied that the auditors were not empowered to draw any political conclusions.

In an interview published in "France Soir" on September 1, 1999, IMF executive director Michel Camdessus acknowledged that a great deal of capital was being taken out of Russia; however, he emphasized that there was no proof of a link between these operations and IMF loans. (Indeed, money carries no inscription indicating its origin.)

At the Central Bank's request, the loan installment was transferred to its affiliate banks in Europe; doing this is in no way contrary to IMF regulations and practice. But the involvement of FIMACO (Financial Management Company Ltd.) was another matter. FIMACO was registered in the Jersey Islands, an offshore zone, with only $1,000 in starting capital to its name. The IMF had no idea of its existence, and the Central Bank did not inform the IMF that some loan money was being transferred into FIMACO's accounts.

The fraud scheme was not very complicated. In carrying out Boris Yeltsin's generous pre-election promises, the Russian government ran out of money - just before the second round of voting in the presidential election. It was forced to borrow from the Central Bank: that very sum of $1.2 billion. In exchange, the Central Bank received a promissory note from the Finance Ministry; this subsequently ended up with FIMACO. Meanwhile, the Central Bank didn't trouble itself to point out to the IMF that it no longer had $1.2 billion. FIMACO, that modest Jersey Islands-based company, had the goodwill of the Central Bank and the Russian government for several years. A considerable part of the money was then invested in Russia's GKO state bonds. This return flow of money was especially great in the lead-up to the presidential election. In this way, the Russian government artificially created market demand, purchasing GKO bonds from itself, using state funds for the purpose. This technique of attracting investment is known as a "Ponzi scheme" in the US, after Carlo Ponzi, a financial fraudster in the 1920s; in Russia, it's called a pyramid. GKO revenues were used to finance Yeltsin's presidential campaign.

In July 2000, "La Repubblica" (Italy) pointed to Mikhail Kasianov as the state official who should be held accountable for the disappearance of the IMF loan installment. Any transaction of this nature would have required Kasianov's signature, including the Central Bank's transactions.

It remains uncertain whether IMF loan funds were involved in the money-laundering scheme carried out via the Bank of New York. BONY vice-president Lucy Edwards and her husband Peter Berlin, who were arrested and confessed, are still giving evidence. Geneva prosecutors have been unable to prove a link between IMF loan money and the case involving private banks in the Ticino canton (the Mabetex case). The case of Alimzhan Tokhtakhunov (also known as the Olympics scandal) is also a branch of this vast financial fraud, which dwarfs the cases of Enron and WorldCom.

The scandal of the lost loan installment cost Michel Camdessus his job. Nor was he the only casualty. A major accusation made against Al Gore in the 2000 US presidential campaign was that he had condoned corruption in Russia. As the Republican candidate, George W. Bush repeatedly said that he wanted to review financial aid programs to Russia and stop giving money to "a system in which money is never used for its intended purpose".

(Translated by Arina Yevtikhova)