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#15 - JRL 7265
July 26, 2003
White Collar Crime in Russia and U.S.
Edward I. Koch
Edward I. Koch is the former mayor of New York City. His commentary for Bloomberg radio is republished here.

Last February, I read a New York Times article on the so-called Russian oligarchs, a number of whom are now the subject of criminal investigation in Russia for having fraudulently obtained billions of dollars in state-owned properties for next to nothing. The Times reported, In Russia the small group centered on people like Vladimir Potanin, Mikhail Khodorkovsky and Mr. [Boris] Berezovsky who, through a complicated mechanism that would have been labeled an outright scam in the West, gained control of vast slabs of the former Soviet states minerals and oil through arranged auctions and loans worth only a fraction of the companies being acquired.

I immediately wrote to Russian President Vladimir Putin, asking: Wouldnt it make sense for a special prosecutor to examine all of the purchases made by so-called oligarchs when the Soviet Union collapsed and Russia accepted the market economy and began the disposition of assets heretofore belonging to the state? If, as The Times states, the auctions and loans are perceived as outright scams by experts in the West, why should the Russian people be permanently deprived of those assets and the income derived from them? I think you would be applauded worldwide if you were to have the matter adjudicated fairly before a court of competent jurisdiction.

Five months later, in The Times of July 18, 2003, Russian Prime Minister Mikhail M. Kasyanov is reported to have stated that Russia would not review the origins of the fortunes made in its much-questioned privatization program. He said, The results of the previous years privatizations are unshakable.

Former Russian President Boris Yeltsin had protected these oligarch thieves. Under his successor, Vladimir Putin, there have been ongoing investigations into the affairs of some of them. The Times reported, ... much of Russias current economic revival was born of its corrupt privatization program of the mid-1990s, and the government could accuse any number of businessmen of past violations and probably even be right.

The reason given by the leader of a right-wing party in the Russian Parliament for not proceeding with the investigation was If we start to dig into this, it will lead to capital flight, emigration and destruction.

President Putin should continue with the investigations and, where the facts warrant, put all of those oligarchs and the government officials who participated in any fraud on trial to recover the properties and profits stolen from the Russian people.

The situation, regrettably, is not so different in the United States. Not long ago, New York State Attorney General Eliot Spitzer entered into a civil settlement with a number of Wall Street analysts and 10 of the largest securities firms in the nation. The settlement required an aggregate payment of $1.4 billion to settle government charges involving the abuse of investors during the stock-market bubble of the late 1990s.

Not one among those with whom the Attorney General settled was pursued criminally. The New York Times, citing anonymous financial experts, has reported that there have been $7 trillion in stock market losses since the broad averages peaked in March 2000. The settling parties contributed to much of those losses.

Other major commercial firms and their corrupt officers and directors also bear a share of responsibility for, among other things, using criminally fraudulent accounting practices. However, to date, they also have not been subject to criminal charges.

The losses to stockholders and their pension funds and losses in jobs and to employee pension funds are staggering. I thought and publicly stated at the time that the settlement entered into by New York State's attorney general was too lenient. In response, Mr. Spitzer said that his civil disposition and settlement did not foreclose criminal proceedings from being brought by federal law enforcement authorities against anyone included in his civil settlement.

Criminal actions should be brought. Not to do so lends credence to the widely held view that if you steal a little, you go to jail; if you steal a lot, you dont. In this instance, the extent of the theft was monumental, with The Times noting that the regulators found fault with every major [investment] bank on Wall Street.

I believe if you really want to get the economy going and restore confidence in government so that the vast numbers of Americans come to believe once again that our government is committed to equal justice for all, it is necessary to bring the weight of the criminal justice system to bear on those who engaged in the grossly dishonest acts that wreaked such devastation on the American public.

Whether in Russia or America, white collar criminals at all levels must be pursued with the same intensity with which we pursue those who commit physical violence. To do otherwise is to invite continuing cynicism on the part of the American public toward our government.

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