Laundering Yeltsin (Page 2)

Moscow

In Russia, money is stolen hand over fist in all sorts of ways. One despicable practice is known as "authorized banking," whereby a politically connected bank is authorized to handle federal budget money. Pension payments, subsidies for Russia's remote Far North communities, funds to rebuild Chechnya--all of it pours into these banks, and far from all of it comes back out. Yeltsin's regime has also handed out lucrative exemptions from customs duties on imported alcohol and cigarettes. These have gone, among others, to the Orthodox Church and to a fund for excellence in sports headed by Yeltsin's tennis coach and friend, Shamil Tarpishchev. Collectively these exemptions have cost the national coffers hundreds of millions of dollars.

Money is also sometimes diverted from corporations--again, often with Kremlin acquiescence. Prosecutors say hundreds of millions of dollars have been siphoned from the airline Aeroflot--a partly state-owned company run by Yeltsin's son-in-law--into a Swiss shell company. And when parliamentary auditors uncovered massive theft at the state-owned Ostankino television station in 1995--Channel 1, the only station that could be seen throughout Russia--Yeltsin "solved" the problem by signing a decree liquidating Ostankino and transferring all its equipment and privileges to a new company called ORT. End of investigation.

Russia is so corrupt that trying to convey the scale is fiendishly difficult. It's like trying to describe, in a few words, the American economy. How? You end up reduced to reeling off a few disconnected facts and anecdotes, in the hope that at least one of them will provide an image that captures the whole.

For example: Russia is, in the IMF's wonderfully chilling phrase, a "net exporter of capital." Wealth is rushing out of the country as if it were a deflating balloon. This is capital flight, not laundered money. But while there are no hard data, it's likely that much of this wealth is ill gotten. Once this was the Soviet Union, a world superpower; today the Russian national budget is just $29 billion, less than that for New York City (that's right: Rudolph Giuliani has more financial resources at his disposal these days than Boris Yeltsin).

Or maybe: This year the Russian Central Bank admitted that for years it has been routing the nation's hard-currency reserves through a shell company in the British Channel Islands called FIMACO. Some $50 billion has washed through FIMACO over the years, including IMF loans. The Central Bank says FIMACO--a company it controls but that apparently has no employees or offices--invested the hard-currency reserves wisely. But it has yet to provide a real accounting of how that was done or of where the profits from those investments have ended up. This is roughly equivalent to Federal Reserve Chairman Alan Greenspan opening a shell company in the Bahamas and transferring everything in Fort Knox and the New York Fed offices to it. The IMF has harrumphed a bit about the FIMACO arrangement, and Russia's special envoy to international financial institutions, Mikhail Zadornov, recently admitted that it had been "inadmissible." But, he added, "the Central Bank has clearly promised never to repeat such a thing."

But what about the reformers? Aren't they fighting all this rot? Not really. Apologists for the reformers say they have been well meaning, and that they simply made a few tactical errors in the way they handled privatizing Soviet assets. But a sheepish "Oops!" hardly makes up for handing away the oil companies for free, and the reformers have more than that on their consciences.

Russia's most famous "young reformer" is Anatoly Chubais. Western media sell Chubais as Russia's leading champion of democracy. But this "democratic reformer" all but called for a Chubais-led junta on the eve of Yeltsin's 1996 bypass surgery; and he was publicly indifferent to the war in Chechnya, even when civilian neighborhoods were being strafed.

Chubais is actually best known for a breathtakingly cynical and corrupt privatization program in which oil companies, metals combines, telecommunications firms--the crown jewels of Soviet industry--were divvied up among a few powerful men described in both the Western and the Russian media as "oligarchs." The oligarchs, who control the Russian media, have been able to set a national economic agenda that has led to richer oligarchs and poorer Russians. And they boast of controlling the political agenda. Yet after years of discussing the oligarchs and the "auctions" of state-owned assets that enthroned them, US officials were still embracing privatization as "reform" [see Janine R. Wedel, The Harvard Boys Do Russia," June 1, 1998].

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