CDI Russia Weekly

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Edited by David Johnson
ISSUE #64 September 3, 1999


The CDI Russia Weekly is an e-mail newsletter that carries news and analysis on all aspects of today's Russia, including political, economic, social, military, and foreign policy issues. With funding from the Carnegie Corporation of New York, CDI Russia Weekly is a project of the Washington-based Center for Defense Information (CDI), a nonprofit research and education organization.


Contents


  1. RFE/RL: Floriana Fossato, Russia: Nuclear Test Anniversary Prompts Debate On Future.
  2. RFE/RL: Roland Eggleston, Russia: FBI Says Most Smuggled Nuclear Material Worthless.
  3. Moscow Times: Brian Whitmore, Papers See Cold War Reprised In Scandal.
  4. Interfax: Russian population shrunk by 406,200 in first half of 1999.
  5. AFP: US, Russia agree to share early warning info during Y2K rollover: officials.
  6. The Russia Journal: Grigory Alexeyev, CIS states claim new savior - NATO.
  7. Christian Science Monitor: Ron Scherer, Mystery of missing billions. A scandal at a major New York bank raises questions about money-laundering schemes across the globe.
  8. USIA Foreign Media Reaction: RUSSIA: 'CORRUPTION' CHARGES SURFACE; SHOULD WEST HAVE 'SMELLED ROT LONG AGO'?
  9. Moscow Times: Andrei Piontkovsky, Europe Needs Russia for Its Dream Team.

#1
Russia: Nuclear Test Anniversary Prompts Debate On Future
By Floriana Fossato

The 50th anniversary of Russia's first nuclear test is fueling debate about
the future of the country's military and civilian nuclear efforts. RFE/RL
correspondent Floriana Fossato reports from Moscow that money remains the
overriding issue. 

Moscow, 31 August 1999 (RFE/RL) -- Russian scientists, officials and
ordinary citizens have just marked the 50th anniversary of the country's
first test of a nuclear device. 

On the eve of last Sunday's anniversary, President Boris Yeltsin released a
statement praising scientists, engineers, workers and soldiers for their
"selfless labours" to lay a powerful basis for Russia's nuclear force. 

Official celebrations included discussions at Russia's Federal Nuclear
Center at Sarov, or Arzamas-16. This is one of the places where, under
complete secrecy and the oversight of former secret service chief Lavrentii
Beria, the original work on the bomb was carried out. 

Commemorations continued yesterday in Moscow at the headquarters of the
Academy of Sciences and at the Theatre of the Red Army. 

In the Kazakh region of Semipalatinsk, where the bombs were tested,
scientists and anti-nuclear activists held a different type of
commemoration. They remembered the more than one and a half million people
whose health is believed to have suffered as a result of decades of nuclear
testing in the region. It is not known how many died. 

The focus on the past is fueling debate on the future of Russian nuclear
science, one of the few remaining areas of research where Russians are
arguably among world leaders. But while Russia's nuclear industry possesses
great expertise, the country's troubled economy has left nuclear research
starved for money. 

One proposal for quickly raising cash was made last week by Atomic Energy
Minister Yevgeny Adamov. He told a meeting of ministers he wants to amend
Article 50 of the Law on Environmental Protection to allow Russia to
receive foreign nuclear waste for storage.  

The law now prohibits storage of any imported nuclear waste. 

Adamov says nuclear storage could bring the country as much as $20 billion
in the next 20 years. 

Members of the government have reportedly been asked to state their
position on the issue before any amendments can be sent to the State Duma
for approval. 

Any proposal to bring nuclear waste into the country has environmentalists
up in arms. Lydia Popova of the Moscow-based Center for Nuclear Ecology and
Energy Policy told the English-language daily "Moscow Times" recently that
any project to import waste would be "a bad dream." 

A dissenting view is held by Thomas Cochran, the director of the nuclear
program at the Natural Resources Defense Council, a U.S.-based
environmental organization. 

He told the daily that opposition from environmentalists is not surprising.
But he calls the Atomic Ministry proposal "the best real prospect" Russia
has to raise money for keeping its stockpile of nuclear weapons safe and to
start cleaning up radioactive pollution. 

Cochran says critics of the project "should propose an alternative
amendment" that would limit the amount of fuel that could be imported and
carefully regulate the use of revenues. 

Money is also needed to keep Russia's contingent of nuclear scientists
happily at work on peaceful projects. These former members of the
scientific elite have seen their wages and privileges decline dramatically
since the breakup of the Soviet Union in 1991. Keeping them well-paid --
and immune to financial offers from countries with nuclear ambitions such
as Iran, Iraq and North Korea -- is a top priority of the West. 

One answer may be a U.S. government project, the Nuclear Cities Initiative,
aimed at bringing high-tech jobs to Russia's nuclear research cities. The
program would fund research in the cities, in effect keeping them alive. 

A U.S. congressional delegation this month visited one of the cities to
promote the proposal. After holding talks in Snezhinsk P also known as
Chelyabinsk 70 -- California representative Ellen Tauscher told reporters
the proposal would aid U.S. security interests as well as helping Russia
create a new economy. 

The program has yet to be approved by Congress. A vote is expected next
month. 

The initiative is not without its critics. 

Paul Josephson, a visiting fellow at Harvard University and a scholar on
Russian scientific history, tells RFE/RL that by preserving the research
cities, the initiative deprives fundamental science of needed support. He
says there should be more money channeled into basic research at the
university level. 

Josephson says the U.S. is actually underwriting a post-Cold War military
enterprise when it should be supporting non-military alternatives.             
  
Back to the top

#2
Russia: FBI Says Most Smuggled Nuclear Material Worthless
By Roland Eggleston

Munich, 2 September 1999 (RFE/RL) - A senior U.S. criminal  investigator
based in Moscow says most Russian nuclear material smuggled to the West is
worthless and incapable of being used in weapons. William Kinane, the
representative of the Federal Bureau of Investigation (FBI) in Moscow, told
a conference on international crime being held this week in Germany that
most nuclear material stolen in Russia and offered for sale is "radioactive
junk." He said  Russia maintains strong security at nuclear research
laboratories and other sites to prevent theft. Kinane said in the past five
years the FBI and Russian police have investigated about 20 cases of people
offering alleged nuclear materials for sale. Almost all of the cases, he
said, involved swindlers offering materials that they did not have. 
Back to the top

#3
Moscow Times
September 3, 1999 
Papers See Cold War Reprised In Scandal 
By Brian Whitmore
Staff Writer


A revival of McCarthyism. A new Iron Curtain. The freshly erected Berlin 
Wall. Monica Lewinsky and Kenneth Starr. 


These are the images several Moscow newspapers were evoking Thursday to 
explain a two-week-old money-laundering scandal - in which Russian mob 
bosses, with Kremlin complicity, reportedly spirited as much as $15 billion 
in embezzled public and corporate funds through the Bank of New York. And 
analysts say that this paranoia, denial and finger pointing will find a 
fertile audience among Russia's disillusioned population. 


"The Iron Curtain," screamed a front-page headline in the daily newspaper 
Izvestia, over an article about U.S. Treasury Secretary Lawrence Summers' 
announcement Wednesday that future IMF loans to Russia are in jeopardy. The 
story, accompanied by a photo of the Berlin Wall with a soldier peering 
through a crack, claimed that Summers' announcement "could be the first step 
in the isolation of Russia." The Interros holding company, run by Vladimir 
Potanin - whose name has surfaced in connection with the scandal - has a 
majority stake in Izvestia. 


Not to be outdone, Kommersant, recently bought by business tycoon and Kremlin 
insider Boris Berezovsky, ran a front-page story entitled "McCarthyism Lives. 
And His Cases Are Fabricated." The story claimed the Bank of New York 
money-laundering reports are zakaznoi, or made to order. 


Kommersant attempted to call the accuracy of these reports into question by 
citing a comment made by Vyacheslav Soltaganov, head of Russia's tax police. 
Earlier this week, Soltaganov told reporters that a correspondence he 
received from the U.S. Embassy in Moscow requesting a joint investigation 
into the Bank of New York money-laundering scandal turned out to be false. 


Soltaganov did not clarify how the documents may have been falsified. 


And the U.S. Embassy would neither confirm nor deny the existence of such a 
correspondence. 


"We do not comment on matters regarding negotiations between governments," an 
embassy spokesman said, adding that the U.S. government enjoyed "fruitful 
cooperation" with Russian law-enforcement bodies. 


"It turns out that the first document to appear after a dozen rather 
revealing publications in the Western media about the Bank of New York 
scandal is now thought to be false," Kommersant editor Andrei Vasilyev wrote, 
vowing to unmask the interested parties who "ordered" the scandal.The 
Kommersant story came complete with a Cold War vintage photograph of Senator 
Joseph McCarthy testifying before Congress in the 1950s - during the 
so-called "Red Scare." There was also a biography of McCarthy for anybody who 
might be interested. 


"Not so long ago, the phrase 'Soviet threat' was born into the American 
political lexicon. But political fashions change. Now, 'Soviet threat' has 
been exchanged for 'Russian mafia.'" 


Vasilyev goes on to write that the new Western practice of equating Russian 
business with the mafia may result in foreign banks refusing to do business 
with Russian banks and clients "simply because they are Russian." This, 
Vasilyev writes, will "deprive us of the ability to transfer money to our 
relatives and children who reside abroad." 


Perhaps these concerns of growing anti-Russian sentiment in the West are not 
without basis. The Wall Street Journal, for example, reported Thursday that 
U.S. authorities suspect Russian organized-crime groups of placing moles in 
major Western banks and securities firms. 


Perhaps the most original - and amusing - take on the matter was provided by 
Vremya MN, a daily partially financed by the Central Bank. Writing that 
"Russia is suffering from the American presidential elections," the paper 
compared the Bank of New York scandal to last year's Monica Lewinsky fiasco. 


"The idea that a whole scandal could be provoked by Republicans who aspire to 
occupy the White House would have been unrealistic prior to the scandal 
involving Ms. Lewinsky," Vremya MN wrote. "But [now] to use materials like 
bank transfers, international financial relations and 'the Russian question' 
against the Democrats looks respectable, and even conservative." 


Starting last month, various American media reported that as much as $15 
billion in Russian money has churned through the Bank of New York in what 
U.S. investigators believe was a major money-laundering scheme. American 
media have linked the investigation to many leading political allies of 
Yeltsin over the years, and also to organized crime. Some of those reports 
also alleged that as much as $200 million in IMF loans to Russia may have 
been included in the laundered funds. 


The allegations have led to the White House calling future IMF loans to 
Russia in doubt. The U.S. Congress has also scheduled hearings on the matter 
for later this month. 


"If Russia believes that this is some Western conspiracy, that is both 
unfortunate and dangerous," said Andrew Parmentier, a spokesman for U.S. 
Representative James Leach, Chairman of the House Banking Committee, which 
will hold the hearings. "Russian democracy is at stake and America needs a 
strong, democratic Russia." 


"There is so much more at stake here than politics. It is the Russian people 
who have lost the most here. These loans were given to Russia to help its 
transition to a market democracy, and thieving oligarchs should not be 
allowed to get in the way of that," Parmentier said. 


Analysts say the anti-Western conspiracy rhetoric will play well with the 
general public. 


"Accusations that the West is attacking Russia will unfortunately have 
considerable resonance in our society," said Alexei Levinson of the Russian 
Center for Public Opinion Research, or VTsIOM. "This scandal reminds people 
how dependent Russia is on the West, it makes them angry about this, and it 
makes them afraid that Russia will lose the Western credits it needs." 


Levinson added that it isn't important whether people believe the conspiracy 
rhetoric or not. "Russians are sufficiently cynical about their public 
officials and have no illusions about them being honest," he said. "What is 
important here is emotions, and this scandal is pushing most of Russia's 
emotional buttons." 


Not every newspaper was spinning conspiratorial yarns about Western plots. 
This week's edition of Obshaya Gazyeta ran a front-page story entitled 
"Farewell, Oh Laundered Russia" that laid the blame for the scandal squarely 
on Russia's officials. 


"In the West they are not searching for ***kompromat***," 


the weekly wrote, suggesting that Russia should investigate each allegation 
rather than get offended. "Since 1992, Russia has received with great 
difficulty $20 billion from the IMF. Such an amount is sufficient to 
establish a somewhat normal economy, but only under one condition - that this 
money is managed by a normal government."
Back to the top

#4
Russian population shrunk by 406,200 in first half of 1999


 MOSCOW. Sept  2 (Interfax)  - The  population of  Russia was  145.9
million as  of July  1, 1999.  In the  first six months of the year, the
population shrunk  by 406,200,  or 0.28%,  the Russian Statistics Agency
reported on Thursday.

 As compared  with the  first half  of 1998,  the rate of population
decline almost  doubled; from  January to  June, 1998, the population of
Russia diminished only by 226,700, or 0.15%.

 The Russian  Statistics Agency  said that this accelerating rate of
population decline is due to a rising death rate coupled with a decrease
in migration from outside Russia.

... and may decline by eight million by 2016
 MOSCOW.  Sept   2  (Interfax)  -  The  Russian  Statistics  Agency  is
predicting that  the population  of Russia  may shrink  by eight million
people by 2016.

 Head of  the Russian  Statistics Agency's  Demographics  Department
Irina Sbarskaya  told the  press on  Thursday that  since the 1960s, the
birth rate  has been  insufficient to ensure the simple replenishment of
the country's population.

 To ensure  replenishment, she  said, every  100 women must have 215
children, not  124 as  now. As  a result,  the population  of Russia has
decreased by 2 million people over the past seven years.

 According to  the Russian Statistics Agency, the Russian population
is also  aging. Whereas  in 1960, the percent of people of greater than
working age  was 12%.  By 1998,  it had  increased to 21% and by 2016 is
likely to reach 25%, it predicts.

 A lack  of balance  can be observed in the age and gender structure
of the  population, the  Russian Statistics  Agency says. There are nine
million more women in Russia than men. This gap is observed in the group
aged over  35 and  is connected  with high  male death  rates caused  by
accidents, injuries and drinking, it said.
Back to the top

#5
US, Russia agree to share early warning info during Y2K rollover: officials

WASHINGTON, Sept 2 (AFP) - Moscow and Washington have agreed in principle to 
share missile early warning information at a center in Colorado over the New 
Year to prevent nuclear missteps if Russian satellites are blinded by a 
millennium bug, US officials said Thursday.

Details still have to be worked out, but Defense Secretary William Cohen will 
discuss the US proposal with Russian Defense Minister Igor Sergeyev in Moscow 
this month and Pentagon officials are hopeful an agreement will be reached, a 
defense official said.

"There is an agreement in principle," the official said, speaking on 
condition of anonymity.

The September 13 meeting between Cohen and Sergeyev, which was announced 
Monday in Moscow but has not been officially confirmed by the Pentagon, would 
be the highest level talks on the US proposal since March, when Russia broke 
off discussions in anger over the NATO air campaign against Yugoslavia.

But lower level talks resumed recently and Pentagon officials have urged the 
Russians to send officers to the center in Colorado Springs, officials said.

Washington is worried that if computers in Russia's nuclear command and 
control system fail when their internal calendars turn over to the year 2000, 
confusion could lead to potentially dangerous misunderstandings.

"The concern isn't that a rocket could be launched automatically," said Major 
Michael Birmingham, a spokesman for the US Space Command who noted that US 
and Russian launch procedures preclude that.

"The concern is that satellite systems that detect missile launches or 
observe missile launches will have a Y2K problem that will cause the 
country's satellites to go blind," he said.

It is believed that computers programmed to read the calendar year as two 
digits will be stumped on January 1 when the year 2000 registers as "00," 
throwing entire systems into turmoil.

US military officials report that all but two US nuclear-related "mission 
critical" systems are now Y2K compliant, but they worry that Russian systems 
may not be.

As a hedge against that, the US military has set up a small center at 
Peterson Air Force Base in Colorado Springs where US and Russian military 
personnel can exchange unclassified information about launches in the days 
before and after New Years.

"The intent is to have an American and a Russian side-by-side to ensure 
strategic stability," Birmingham said.

It would consist of two Russian officers sitting alongside a US officer and a 
senior non commissioned officer, who would be in voice communication with the 
US early warning command center inside nearby Cheyenne Mountain.

The US-Russian center will have a hotline linking it to Moscow, Birmingham 
said.

If any anomalies do occur in the Russian early warning system, the Russian 
officers could consult the Americans and report back to Moscow.

Plans call for the center to operate from December 27 to January 6. 
Back to the top

#6
The Russia Journal
www.russiajournal.com
DATE: 1999-08-30 
CIS states claim new savior - NATO 
By GRIGORY ALEXEYEV

If recent media statements and official hints are anything to go by, the
ruling elites of Georgia, Azerbaijan and Moldova, inspired by NATO success
in Kosovo, now want the alliance to sort out conflicts in the disputed
regions of Abkhazia, Trans-Dniestr and Nagorny Karabakh. 

Azerbaijani Presidential Adviser for Foreign Policy Vafa Gulizade said he
firmly believes NATO should intervene to settle the fate of Nagorny
Karabakh, disputed by Azerbaijan and Armenia. Two Georgian presidential
advisers, Shalva Pichkhadze and Archil Gegeshidze, said they would approve
a NATO-led operation in Abkhazia like that in Kosovo.  

Speaking at a North Atlantic Parliamentary Assembly meeting, Chairman of
the Abkhazian Autonomous Republic's Supreme Soviet in Exile Tamaz
Nadareishvili said NATO's operations in Kosovo "have given some hope to the
many thousands of Abkhazian refugees."  

And Moldovan ex-President Mircea Snegur threatened the self-proclaimed
Trans-Dniester Republic and "its Moscow patrons" with NATO air strikes. 

But NATO member representatives, including U.S. Deputy Secretary of State
Strobe Talbot and Col. Steven Randolph, one of those behind the Partnership
for Peace program, are quick to assure Moscow that the alliance has no
plans to use force in former Soviet countries. 

NATO officials say that the existence of refugees is not in itself
sufficient grounds for intervention, and recognize that both sides in the
Abkhazia, Nagorny Karabakh and Trans-Dniestr conflicts committed their
share of human rights abuses.  

The West, fearing any possible revival of the Soviet Union, encourages CIS
countries to build close ties with NATO. At the same time, NATO member
states have no desire to be dragged into protracted smoldering conflicts on
the outskirts of Europe.  

On principle, NATO member countries do not set up military bases in
volatile areas that, in times of crisis, could be cut off from
communication links. Nor do they launch peacekeeping operations unless all
parties in a conflict have signed an agreement, as was the case in Kosovo.  

Those pushing for NATO humanitarian intervention in post-Soviet conflict
zones understand that. But their hints and statements are for Moscow's ears.  

Earlier this year, the three CIS countries Georgia, Azerbaijan and
Uzbekistan declared their withdrawal from the Collective Security Treaty -
a Russia-led CIS military alliance.  

Guluzade even said his country would allow a U.S. military base on its
territory. His statement was followed by a series of leaks to the effect
that Azerbaijan was willing to issue similar permissions to Turkey, NATO as
a whole and even to Israel. 

Georgian President Eduard Shev-ardnadze said participation in the treaty
failed to help Georgia resolve its security problems and that the country
would extend its Collective Security Treaty membership only if the treaty
is fundamentally revised. 

The treaty has failed to establish any effective conflict-resolution
mechanisms. The Military Coopera-tion Coordination Center, composed of
military representatives from the treaty's nine member states, is
re-sponsible for promoting CIS military cooperation. But joint peacekeeping
is only successful if the conflicting parties are willing to compromise. So
far, that has not been the case.  

Azerbaijan demanded that Russia cease military cooperation with Armenia and
recently got upset with Moscow for deploying fighter-jets and air-defense
complexes at a Russian military base in Armenia - even though strengthening
the Armenian air-defense sector was essential for a unified CIS defense
system.  

Georgia wants Russian peacekeepers in Abkhazia to police the Gal district,
where Georgian refugees wish to return.  

And would-be regional power Uzbekistan took an ambiguous stand in the
neighboring Tajikistan conflict, insisting that Russian troops stay there
as long as war remained a threat and calling for their departure once
relative stability was achieved.  

Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova established GUUAM, an
alternative to the Collective Security Treaty in 1998. 

Established as an economic alliance, it has increasingly gained military
significance. The five GUUAM defense ministers adopted a resolution on
forming an independent peacekeeping battalion during their  January 1998
meeting, and at a meeting during April's NATO Washington summit declared
their intention to maintain peacekeeping operations without Russian
participation.  

But GUUAM member-states do not have the resources to perform such
independent operations, while the Western alliance will not likely agree to
get involved in them. GUUAM leaders, however, seem more interested in the
effects their declarations have on Russia.  

Reacting to NATO's expansion and increased initiative, several Russian
generals have made militant statements concerning the CIS military
structure's role as a counterbalance to the Western alliance.  

But Russia's CIS partners have reacted by dangling the threat of NATO
intervention in Russia's zones of interest as a means of pressing Moscow
for military-political as well as economic concessions.  

That is why Shevardnadze is once again raising the issue of replacing
Russian peacekeepers with NATO troops in Abkhazia, and Azerbaijani and
Uzbek officials are threatening Russia with opening their republics for
NATO military bases. 

Even Belarus, Russia's most reliable Collective Security partner, is trying
to benefit from Moscow's NATO-phobia. President Lukashenko, miffed at
Russia's half-hearted promotion of the Russian-Belarussian Union,
threatened to seek friends in the West.  

But this will not change the military-political balance, and the best thing
Russia can do is avoid giving in to blackmail. 

Back to the top

#7
Christian Science Monitor
3 September 1999
Mystery of missing billions
A scandal at a major New York bank raises questions about money-laundering 
schemes across the globe. 
By Ron Scherer, Staff writer of The Christian Science Monitor

It has all the trappings of a Hollywood blockbuster: billions of dollars 
missing, two successful female bank executives helping to move the money, and 
a old line New York bank hoping to make a fee from moving the loot. 

Only, it's no movie. At least not yet. 

Federal authorities are still trying to unravel what's been going on at the 
Bank of New York, an institution that dates back to Alexander Hamilton, and 
its office in Russia. Over the last week, there have been reports the bank 
was involved in moving billions of dollars out of the troubled country. Did 
the money come from organized crime, officials trying to get their money out, 
or legitimate business? So far, no one knows for certain. Call it the Mystery 
of the Missing Billions. 

Later this month, the House Banking & Financial Service Committee will hold 
hearings on the case. It is likely to hear this is not an isolated incident. 

Mafias from around the world have long formed "an unholy alliance" with banks 
to clean up money from prostitution, drugs, and other crimes. Now, even 
institutions with solid reputations are becoming ensnared. According to the 
Transnational Crime and Corruption Center (TraCCC) at American University in 
Washington, global money-laundering is now a $500 billion a year business. 

"This is just the tip of the iceberg. There are more money laundering 
scandals just around the corner," says Keith Henderson, co-director of the 
TraCCC. 

Political implications 

Investigating this latest scandal, however, is going to be difficult since 
both Russia and the US are holding presidential elections next year. There 
may be implications for politicians, and challenging candidates are already 
beginning to make it an issue. Yesterday, US presidential candidate Bill 
Bradley said US assistance and lending to Russia has been "misdirected and 
ineffective." Republican candidate Steve Forbes vows to run ads blaming Vice 
President Al Gore, who is co-chair of a commission on US-Russia relations. 

And in Russia on Tuesday, three Rus- sian prosecutors were fired as they were 
looking at scandals involving a number of high level Russian officials. 

"Many of us fear it will take on a political dimension to threaten the 
integrity of the investigation," says Mr. Henderson. 

No matter what happens, almost everyone agrees the investigation will be a 
long- term affair. The FBI is urging patience until all the facts are known. 
It has also said some news stories are inaccurate. 

IMF funds involved? 

For example, there have been reports that some of the money flowing through 
the Bank of New York was IMF funds meant for Russian stability. However, this 
week, Thomas Dawson, director of external relations for the IMF, said, "We 
have absolutely no indication of any IMF money being diverted in association 
with the Bank of New York or any other investigation that might be under 
way." 

Despite the denial, the IMF issue has raised hackles in Washington. On 
Tuesday, Treasury Secretary Lawrence Summers told USA Today that the US will 
not support the disbursement of additional IMF money until there are 
safeguards in place and past funds are accounted for. The IMF currently has a 
mission in Moscow to work on the next disbursement of $640 million. 

Henderson says it's likely the billions that moved through the bank's offices 
came from a variety of sources, including the IMF. "It's almost certainly a 
mix of legitimate and illegitimate," he says. 

Some of the money, for example, is likely to be flight capital as wealthy 
Russians moved their money out of the country. In a 1998 study of Russian 
flight capital, John Whalley, a professor at the University of Western 
Ontario in London, Canada, estimated Russians are moving about $17 billion 
per year. 

Between Jan. 1, 1994 and Sept. 30, 1997, Mr. Whalley estimates, Russians 
moved $68 billion abroad - a sum exceeding the total flight capital from 
Mexico between 1979 and 1987. The study, done in conjunction with the 
Moscow-based Institute of Economics, suggests 33 percent of the money is 
illegal, 37 percent is semi-legal, and the rest is legitimate. 

"To me the Bank of New York is not the key issue. It is just symptomatic of 
the key issue: capital flight," says Lt. Gen. William Odom, a senior fellow 
at the Hudson Institute and a former member of the National Security Council. 
"Why is money coming out while we're putting money in?" 

Corruption high up 

Some of the flight capital may be from corrupt officials moving the money 
into safe locations. So far, investigators are looking at banks in the US, 
Switzerland, Hungary, and the UK. 

"The complicity of corrupt public figures, corporate executives, and others 
like accountants and lawyers is a growing problem," says Henderson. 

The Bank of New York came to attention when UK officials noticed large sums 
of money moving through its accounts. Two female officers, both married to 
Russian men, were suspended. One of the officers has since been fired. The 
bank, in a statement, says it's cooperating with the on-going investigation. 

"With the amount of money allegedly involved, it should have raised cause for 
concern by top officials," says Nick del Rosso, president of CDR 
International, which does investigations for banks. 

However, Albert Tellechea, an Orlando lawyer who represents banks, says it's 
unfair to blame the bank since they were dealing with other Russian banks. 
"They were caught in a kind of Catch 22," he says. "They were so far removed 
from actual client who made the actual deposit." 

Clever Russians aren't the only ones moving money. Law-enforcement officials 
believe a significant amount of money moving out of Russia comes from 
organized crime. John Connor Jr., portfolio manager of the Third Millennium 
Russia Fund, a mutual fund, says there are about 2,000 crime families or 
syndicates in Russia. 

Mr. Connor thinks some of the money may also have come from officials 
stripping assets from companies. "That's stealing anywhere," he says and 
predicts some prosecutor - whether Russian or American may ultimately 
investigate. "They do have prosecutors in Russia and they do a good job," 
says Connor.   
Back to the top

#8
Excerpt
USIA
Foreign Media Reaction
August 31, 1999

RUSSIA: 'CORRUPTION' CHARGES SURFACE; SHOULD WEST HAVE 'SMELLED ROT LONG AGO'?

Russia-watchers added the emerging money-laundering scheme allegedly
involving Russian government officials and organized crime--dubbed
"Russiagate"--to their list of concerns about that country's "pitiful"
political and economic situation. While unrest in the southern republic of
Dagestan and last week's Shanghai Five summit--during which the Russian and
Chinese presidents discussed forging a "strategic partnership"--garnered
some attention, news of the financial scandal dominated comment over the
last week. Editorial writers throughout Europe judged recent "revelations"
to be more evidence that "Russian officialdom is thoroughly corrupt," and
further speculated that electoral politics in Russia and the U.S. may be
adversely affected by fallout from the scandal. A recurring theme in
several papers was what responsibility the West bore in perpetuating the
"illusion" that Russia was "creating a law-based, market-friendly liberal
democracy." "Any remaining illusions about the efficacy of Western-backed
reform in Russia have been evaporating...with exceptional speed," claimed
London's independent Economist, adding, "The Clinton administration should
clear the air and admit some hard truths about Western policy toward
Russia." Several observers agreed with a Polish analyst that the scandal
confirms that "the policy of the West towards Russia--whose main
instruments have been IMF loans--has ended in a fiasco." A few, however,
defended the Western governments' support for Mr. Yeltsin and for IMF loans
to Russia. Rome's influential La Repubblica, for example, insisted that
"whoever decides to criticize the support given to Yeltsin by the West
should first answer a couple of questions. Whom else could we have
supported on the Russian political scene between '91 and '96, if not
Yeltsin? Who else seemed in the position to reject the assault of
nationalists-Communists?" Additional highlights follow:

'RUSSIAGATE'--DID 'WEST TURN A BLIND EYE?': As "Russiagate" broke, the
suggestion that Western governments had willfully ignored evidence that
"Russia was turning into a 'kleptocracy,'" with "crime an integral part of
all sectors of its economy, its administration and its political
structure," was voiced by many in the media. A Moscow pundit took a
somewhat jaded view, asking, "Why this hullabaloo in the media over
billions of dollars laundered through the Bank of NY? All this is not new.
The West, true to its double standard, just turned a blind eye to those
things." "What a surprise! Russia is corrupt!" headlined an Italian paper. 

DAGESTAN: Reports of "an end to the fighting in Dagestan" failed to allay
fears in Russia and elsewhere that tensions in the Caucasus would erupt
again. Some suggested that a "weak" central government, beset by "political
struggles," has emboldened separatists. In order to "confine this quagmire,
a less confused and tottering Russia is required," quipped one writer. 

A MOSCOW-BEIJING 'STRATEGIC PARTNERSHIP?: Pundits were skeptical about a
Sino-Russian alliance to "counterbalance" the U.S., seeing it as mainly a
"rhetorical" exercise. A Brussels paper derided the partnership as "a
bombastic formula which is inversely proportional to its content." Moscow's
reformist Izvestiya questioned why Mr. Yeltsin would engage in such a
"theater of the absurd" at a time when Russia "needs loyalty from the West." 

EDITOR: Katherine L. Starr

Editor's Note: This survey is based on 67 reports from 29 countries, August
19-31. The following editorial excerpts are grouped by region; editorials
from each country are listed from most recent date. 

RUSSIA: "West Changes View Of Russian Reform" 

Konstantin Sorokin said in centrist, trade union Trud (8/31): "For two
weeks now, the press in the United States, Switzerland, Italy and other
countries has been writing extensively about the Russian mafia and its
massive money-laundering operation in the West.... The tone of the latest
commentaries abroad suggests that the United States and the West are
radically changing their view of Russian reform and government. Of course,
there is that principle in the West about its 'own sons of bitches.' But
'sons of bitches,' by definition, take good care of the Big Brother's
interests. The Russians don't. Besides putting their own interests ahead of
everybody else's, they...engage in subversive activity abroad, exporting
corruption and crime. That is too much. The West can't bear that." 

"West Turned A Blind Eye" 

Former Deputy Premier and Finance Minister Boris Fyodorov wrote in
reformist Segodnya (8/31): "Why this hullabaloo in the media about billions
of dollars laundered through the Bank of New York and high-ranking
officials having bank accounts in Switzerland? All that is not new. The
West, true to its double standard, just turned a blind eye to those things.
Any attempts to clean and civilize Russia are welcome. Hopefully, with
pressure from the press and public, the Western authorities will get
serious about that this time.... The West can do better than give credits.
IMF credits make no sense. The governments that received them were
short-lived, had no economic programs, and offered no guarantees that the
money would be used properly." 

"Russia Always Had Corruption" 

Reformist Vremya-MN (8/31) ran this by Tatyana Malkina and Dmitry Volkov:
"There has always been corruption in Russia (it certainly did not appear in
1991). But it has never stopped anyone from dealing with this country.
Besides, money-laundering is common. Even American journalists have had to
admit this, noting that around $180 billion is laundered through U.S. banks
every year by criminals from across the world." 

"Had The West Cared" 

Tatyana Malkina observed in reformist Vremya-MN (8/30): "No doubt, the
Russian government is corrupt. The reason is not that it takes bribes from
corrupt Russian business, but that it is incompetent, ignorant and wild. In
Russia, political power is hard to win and easy to retain. Government
officials (not all, but many) know little about the economy.... The
president, too, is corrupt in the same sense--not because his daughters are
said to have accounts in foreign banks. The president, not too
knowledgeable either, has no idea what to do with this country, nor does he
want to do anything. But then, who does? Had the West cared, it would have
smelled rot long ago. Had it wanted to be stern, it would not have delayed
a near-complete Russian default, given credits, winked at the shooting of
the Russian parliament and the Chechen war, or shaken hands with Yeltsin." 

"Hotbed Of Terrorism" 

Reformist Vremya-MN (8/30) ran this comment by Viktor Paukov and Eduard
Lefko: "An end to fighting in Dagestan has not brought the federal
authorities peace of mind. 

"The Russian army has again proved less than combat ready. Even worse,
Chechnya, a major headache, may, with a weak government in Moscow, become a
center of international terrorism. The war in Dagestan is a litmus test
making all those tendencies more pronounced." 

"West Behind Mercenaries" 

Neo-communist Slovo (8/27) ran this piece by Stanislav Menshikov: "It is
commonly known that groups of Chechen and Wahhabi rebels include foreigners
from Arab countries and Africa.... But our authorities and media are very
reticent about the West being behind the mercenaries, refusing to talk
about it other than in a low voice or with references to 'foreign special
services.' The fact is that the West is pressing ahead with its strategic
offensive against Russia to weaken and partition it. The operation in
Dagestan was only a test to see how Moscow would react to it. NATO may
change the forms of its indirect aggression in the Caucasus, [but] it will
not give up its attempts to oust Russia until we destroy its clients
completely."

"Our Politics, Business Dirty" 

Reformist Izvestiya (8/27), carrying reports by Igor Ivanov, Aleksei
Nikolsky and Dmitry Kuznets on recent press publications in the West about
a massive money-laundering operation involving the Russian 'mafia' and
American banks, front-paged this comment: "The Russian elite, along with
the rest of this nation, has gotten into a dirty story, so dirty that you
want to wash your hands after reading the latest Western publications.
Obviously, this is a big campaign to discredit Russian leaders, businesses
and this nation as a whole. The reasons behind it are not quite clear yet.
But its effects will be destructive. Serious people in the West will turn
away from Russia because all Russians are 'bandits and thieves.'"

"Victory Without Victors" 

Viktor Paukov said on page one of reformist Vremya-MN (8/26): "There is
hardly cause for celebration. Though the rebels are gone, this does not
look like a full military victory. After all, it is not the feds but the
local population, strongly opposed to the invading force from Chechnya, who
decided the outcome of the fighting. That does not add laurels to the
federal troops. What kind of army is it which asks the population for help
in order to win a victory?"

"Moscow, Beijing Talk Like Allies" 

Aleksandr Chudodeyev judged on page one of reformist Segodnya (8/26):
"Yeltsin has made it clear to Western leaders...that they can't write him
off as a politician, not yet--he can still make things difficult for them.
He has also demonstrated the potential of Russia-China rapprochement. Even
though it was stated that a political alliance or bloc (between Russia and
China) was out of the question, the two presidents met exactly as political
allies." 

"Theater Of The Absurd" 

Maksim Yusin commented on page one of reformist Izvestiya (8/26): "Yeltsin
should not have gone to Bishkek. He could not have found a worse time for
the kind of statements he made there. It looked like theater of the absurd.
Now everybody knows that rather than working on Russia's internal problems
and trying to lead it out of an economic crisis, the Kremlin 'is preparing
to fight.' This at the time when Russia needs loyalty, if not allied
relations, from the West. Given the latest events in Dagestan, Yeltsin's
theater of the absurd appears doubly absurd. Are we fighting the West in
the Caucasus? No, we are fighting Islamic fundamentalism, the worst
anti-Western force there is in the world. NATO is not going to attack us,
whereas Basayev and Hottab have already done that. Why fight on two fronts
when we can't get a handle on one?" 

"Ideological Invectives" 

Sergei Guliy remarked on page one of reformist Noviye Izvestiya (8/26):
"The Bishkek declaration, adopted in honor of a multipolar world, is full
of ideological invectives that would be a credit to the late Soviet
leaders' speechwriters." 

"China Seeks Ally To Oppose U.S." 

Reformist Vremya-MN (8/25) front-paged this by Arkady Dubnov in Bishkek:
"Jiang Zemin made it clear a month ago that he would only come to Bishkek
if his Russian friend (Boris Yeltsin) did. Friendship is a great thing,
especially when you have someone against whom you can use it. Beijing hopes
Moscow will be an ally in fighting 'American hegemony' which the Chinese
leaders find particularly dangerous after Kosovo." 

"Russia Can't Protect Itself" 

Reformist, business-oriented Kommersant Daily (8/25) lamented editorially:
"No matter what the army command says, the war in Dagestan will not end
soon. It is clear now that Russia's military can't do its main job. It
can't repel aggression."

"Never-Ending War" 

Neo-communist Slovo held (8/20): "Drawn into another war in the North
Caucasus, Russia will never end it, unless it solves the Chechen problem.
How? By totally destroying the bandits who have become an army by now. Busy
watching political struggles between the Kremlin and the Duma, constant
cabinet reshuffles, porno scandals involving members of the ruling and
financial elites, and groaning under the effects of the August default and
rising prices, we have not been thinking much about Chechnya.... While the
Chechen authorities are powerless, the bandits are omnipotent. Dagestan is
only the beginning." 

"You Can't Win In Caucasus In A Week" 

Viktor Litovkin contended in reformist weekly Obshchaya Gazeta (# 33,
8/19): "The problem is that we don't have an official policy on the armed
forces. We tend to use the army as a rescue team, and it lacks basic
necessities, from modern weapons to communications, surveillance and
guidance equipment which is standard in foreign armies. The most important
thing, which seems clear to the army and the New York Times but not to the
Kremlin, is that you can't win the Caucasus by force, not in two weeks or
even a year, just as you can't cure gangrene with a scalpel alone." 

"Everybody Sets Sights On Caspian Oil" 

According to Boris Yunanov in reformist weekly Obshchaya Gazeta (# 33,
8/19): "The rebels play into the hands of those who cultivate the notion of
a 'weak and unstable Russia' which is unable to 'digest' big Caspian oil.
Ankara, Riyadh, Tehran and Washington each have their own plans for the
Caucasus. While their policies and philosophies may differ, their economic
interests are the same. Moscow is wrong to think that it can consolidate
its position in that area by bombing Basayev and Hattab. To do that, it
needs diplomatic as well as military means. Otherwise, it will lose the
Caucasus for good." 

"Most Inauspicious Time" 

Boris Volkhonsky, reporting on U.S.-Russian arms control consultations in
Moscow, pointed out in reformist, business-oriented Kommersant Daily
(8/19): "If the Americans sought an immediate solution to both problems
(ABM, START III), now would be the wrong time to do so. 

"Engrossed in electoral struggles, the Russian MPs would not think of
wasting their time on 'trifles' like START, and left-wing candidates would
try to present the U.S. intention to build an anti-missile defense system
to protect itself from rogue regimes...as another threat to Russia's
security."
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#9
Moscow Times
September 2, 1999 
SEASON OF DISCONTENT: Europe Needs Russia for Its Dream Team 
By Andrei Piontkovsky
Special to The Moscow Times

The European Union welcomes Russia's return to its rightful place in the 
European family in a spirit of friendship, cooperation, fair accommodation of 
interest and on the foundation of shared values enshrined in the common 
heritage of European civilization" f These words introduce a vital document 
approved by the European Union at its summit in Cologne on June 3-4, the 
"Common Strategy of the European Union on Russia." It is the first foreign 
policy document approved by the EU under its new approach to a common foreign 
and security policy, and we can only welcome the friendly hand extended to 
Russia. 

This sincerely formulated invitation, however, implicitly misspeaks a 
historic assumption that Russia was always an organic part of Europe and only 
the 1917 Revolution drove us from our historic path and from European 
civilization. But that begs the question our grandfathers the Slavophiles and 
Westernizers debated throughout the 19th century. The argument over whether 
Russia is part of Europe never ceased within our own culture over several 
centuries. The Soviet era is no exception. These are debates not about 
geography, but about values. 

Someone put it well back in the 19th century: The border between the 
Westernizers and the Slavophiles passes not between political parties, but in 
the heart of every Russian. 

For the Westernizers, Russia's place was always in Europe because the very 
values enshrined in the common heritage of European civilization f individual 
freedom, human dignity, tolerance and diversity f were dearest to them. For 
the Slavophiles f or Europeans, or derzhavniks, as they called themselves at 
various times f a different collection of values was central: the greatness 
of Russia, the preservation of its enormous territory, and the uniqueness of 
its culture and civilization. 

Something new is now occurring in the Russian political consciousness, or, 
more accurately, in the political subconscious on the verge of the 21st 
century. The Slavophile hemisphere is beginning to understand, if not 
verbalize, that these values that are so dear to it can be defended only in a 
greater Europe that extends from Dublin to Vladivostok.We already know who 
the superpowers of the 21st century will be: The United States and Great 
China. Not Great Britain, not France, not Germany, not Russia, and not even 
the European Union with its current members can stand beside them. 

Only a greater Europe, including Russia as one of the main supporting 
constructions, can close the strategic triangle to create a sustainable 
geopolitical configuration for the 21st century. 

Russia's only chance to return to the superleague of the world politics is as 
an equal member of the European Dream Team. 

Among the main players of the next century, only Europe is interested in 
Russia (and consequently Europe) maintaining control over Eurasia. Europe 
would prefer to intersect with other great world civilizations not at the 
Urals, but at the Pacific Ocean. And finally, Europe can deem Russian culture 
worthy, because it has long constituted an organic part of the world view of 
any educated European. 

Russia has received its chance to overcome the centuries-old schism within 
its culture and its soul, and Europe has finally received its chance to 
become a world power of the 21st century.

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