Laundering Yeltsin

Laundering Yeltsin

The Russian Foreign Minister says it’s an American plot to keep Russia weak. The head of the KGB-successor agency offers that same conviction in a formal briefing to President Boris Yeltsin.



The Russian Foreign Minister says it’s an American plot to keep Russia weak. The head of the KGB-successor agency offers that same conviction in a formal briefing to President Boris Yeltsin. The Kremlin press office compares it to the Spanish Inquisition. And the nation’s most liberal, pro-Western newspapers splash articles across their front pages about US plans to provoke a new cold war–to isolate Russia, destroy its economy and perhaps even drag Yeltsin himself to the United States for trial as a common thief.

Why is Moscow so aroused? Well, Americans woke up a few weeks ago, picked up the New York Times and had an epiphany. It turns out that Russia is corrupt! Now we are scolding the Russians: How did you get so corrupt?

Russians, amazed, respond that this is outrageous hypocrisy. They have been suffering under an openly rapacious and corrupt regime for eight years. Throughout, as Russians well know, both the US government and news media have been apologists for that regime. They have winked at massive theft and wrongdoing, misreported it [see Matt Taibbi and Mark Ames, “The Journal‘s Russia Scandal,” in this issue] and, in the case of the government, even subsidized it.

Why? Because the ends justify the means: It seems that there are good people called “reformers” who are forcing enlightenment upon Russia. They speak English, and they are eloquent about their desire to build democracy and capitalism. All thinking people ought to support these reformers even if that support has to be manufactured.

The American headlines about corruption and Russia are revolving around two separate and so far unrelated allegations. One is that Yeltsin and his daughters, among others, were given cash payments from Mabetex, a Swiss company that has won sweet contracts to refurbish the Kremlin; the other is that billions of dollars have churned through a few accounts at the Bank of New York in what may have involved the laundering of money whisked out of Russia. (There are other scandals, but those are the ones that have interested Americans.)

So exactly whose billions were these in the Bank of New York? The explanation du jour is that they were the collective insider-trading winnings of the Russian political elite, who racked up fortunes on Russia’s capital markets and then converted them into dollars and shifted them abroad before last year’s financial crash. Among those pushing this explanation is Yuri Skuratov, Russia’s suspended prosecutor general, who said recently that 780 top Russian officials are being investigated for insider trading. (The Kremlin suspended Skuratov earlier this year when, after three years of good work, he suddenly started prosecuting. Skuratov has assisted Swiss officials on the Mabetex case.)

But hypothesizing about the precise origins of the Bank of New York money is an exasperatingly academic exercise. It misses the point. We already know–we’ve known for years–that Russia has been bled dry by corruption. The Kremlin’s own study of corruption, released in the summer of 1998 and ignored by the Western press, estimated that it was costing the country somewhere between $15 billion and $20 billion every year. For comparison, the IMF has loaned a total of just $16 billion to Russia since 1992.

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].

In the wake of last year’s financial crash, former Prime Minister Viktor Chernomyrdin was briefly brought back into power. Much could be written about Al Gore’s pal Chernomyrdin and corruption in Russia. Suffice it to say that markets greeted Chernomyrdin’s revival by dumping rubles but also by frantically buying up stock in the natural gas monopoly, Gazprom, Chernomyrdin’s pet company. Chernomyrdin’s response to the ruble meltdown was to advocate an “economic dictatorship.” Ordinary Russians wondered, quite sensibly, what the difference was between an economic dictatorship and a dictatorship.

“Calm down, world,” is the response of Deputy Secretary of State Strobe Talbott. Along with Treasury Secretary Lawrence Summers, Talbott has been the architect of Clinton’s Russia policy. “We have been aware from the beginning that crime and corruption are a huge problem in Russia and a huge obstacle to Russian reform,” he says. “It is going to take decades [and] the problem will only get worse if you isolate Russia.” To hear Talbott, Summers, Gore, the IMF and the rest of the gang tell it, all these years we have been “engaging Russia”–and the only two choices are to “engage” Russia or to “isolate” Russia.

But there are all sorts of ways to engage Russia that fall well short of subsidizing and apologizing for a corrupt regime that the Russian people themselves despise. Probably the best thing we can do is apologize and set the record straight. We could also change our aid policies. Let’s have no more vague multibillion-dollar IMF loans–loans often tied to dogmatic economic scoldings–that evaporate without a trace. Instead, we could invest in concrete projects in the national interest of both Russia and America: upgrading safety at Russia’s nuclear power plants leaps to mind, as does improving the country’s weapons security. If we want to invest more specifically in Russia’s economic infrastructure we could set up a massive educational exchange.

That would be engagement. What we have offered instead is an enormous check–one that comes with the understanding that we are giving so much money because we can’t be bothered to spend the time trying to understand Russia’s national needs and problems or even worrying about whether the aid is soaked up by FIMACO, oligarchs and USAID’s clique of pet “consulting” corporations.

In the “who lost Russia?” debates there is one last argument. It is the trump card, quoted axiomatically as a truism: “Russia was never ours to lose.” One strength of this argument is that it’s impossible to refute–we’ll never know now, will we? But it’s defeatist. Moreover, it ignores the enormous moral authority we had in post-Soviet Russia. Our media and governments had for years appealed to the people of the Soviet Union over the heads of the Kremlin. It was hard work. By paying Russians this respect, we in turn earned their respect. Now it’s all squandered.

In the United States, talk of Russian corruption is forcing a healthy debate on a reluctant White House. Some of the reporting and politicking may be sloppy, but it’s still democracy in action. Not so in Russia. Here, it’s axiomatic that Russia is corrupt. But they know we helped to build the system and to apologize for it; they think our cries of outrage are late and insincere because they are so perfectly timed for a US presidential election season. Ordinary Russians are also feeling defensive because they know that they are collectively complicit. Russians often cite the old chestnut that in a democracy, people get the government they deserve. Russia re-elected Yeltsin knowing his regime was corrupt; it was a choice they agonized over, but few Americans commiserated then–we were too busy cheerleading and ignoring how the corrupt Yeltsin team had billions of dollars to spread around and a chokehold on all television coverage. Many Russians also feel they are “corrupt” in that doing business involves evading taxes–which remain crushingly high at Washington’s insistence. Rather than seriously oppose the looting of the budget, we have for years insisted that Russia collect more taxes to make up the difference. (And money kept hidden from tax authorities often must be parked abroad, in places like the Bank of New York.)

Even so, if the Mabetex/Bank of New York stories had broken just six months ago, the Communists would be baying and Moscow Mayor Yuri Luzhkov, who wants to replace Yeltsin, would be doing his populist best. Now, however, the opposition is curiously muted. The reason? Fear that a cornered Yeltsin will lash out.

In about ten months, Yeltsin is supposed to leave office. Unless he can plug a loyalist into the Kremlin–through elections or otherwise–and get a Ford/Nixon-style blanket pardon, Yeltsin surely fears he will be hounded by future governments and prosecutors. The Kremlin inner circle that Russians derisively call “the Family”–chief among them Boris Berezovsky, who even in 1996 was urging Yeltsin not to have presidential elections–are feeding that fear. Like Yeltsin, the Family members need a loyal lieutenant as the new president. The catch is, Yeltsin’s anointed successor, Prime Minister Vladimir Putin, is unelectable in the few months remaining. In fact, the uncharismatic former KGB man Putin will probably never be electable as long as he is opposed by Luzhkov and Luzhkov’s prize allies, former Prime Minister Yevgeny Primakov and the powerful NTV television.

As Yeltsin mulls this over, the Family is whispering in his ear. Long before the Bank of New York made headlines, the Family’s media were trumpeting the idea that there can be no safe retirement for Yeltsin. Berezovsky-controlled ORT national television, for example, has reported loudly (and incorrectly) that a Luzhkov lieutenant has advocated having Yeltsin shot in the same manner as Romanian dictator Nicolae Ceausescu. That “report” was engineered by the Family and had an intended viewership of one: Yeltsin.

Literaturnaya Gazeta, a paper controlled by Luzhkov’s pet holding company, AFK Sistema, countered with a report in August that forces in the Kremlin were preparing to discredit the Moscow mayor by hitting his city with terrorist bombings. Since the end of August, Moscow has been stunned by three major bombings that have killed more than 200 people.

Enter the United States–wailing and gnashing our teeth about Russian corruption. For the Family, the timing could not be better. Another Berezovsky property, the newspaper Nezavisimaya Gazeta, promptly reported that Luzhkov was somehow orchestrating all the embarrassing international news coverage. Berezovsky also said as much in an interview with the Interfax news agency: He argued that “Luzhkov and his henchmen” were behind the Western media reports and should be “brought to justice.” Meanwhile, Izvestia, controlled by the Uneximbank/Rosbank empire, has been reporting that a Republican White House would seek to extradite and prosecute Yeltsin.

Now imagine Yeltsin inside his Kremlin bunker–following the back-and-forths in the Russian media about his future and contemplating his colleagues on the world stage. He must be thinking: What did Slobodan Milosevic ever do in Kosovo that I didn’t do ten times over in Chechnya? How corrupt is Indonesia compared with Russia? And even if I want to step down, can I afford to if the Russian Communists and the US Republicans both want me on trial?

The White House ought to be countering the Berezovsky spin with a Machiavellian public relations operation of its own–one designed to convince Yeltsin that his safety is assured, provided he leaves office democratically. But it may be too late. There are a handful of ways Yeltsin and the Family can scuttle elections–and since the Bank of New York story broke, all have shifted into high gear. Yeltsin could simply declare a state of emergency and put the vote on hold. Plausible-sounding justifications can be found in the Moscow bombings and the Chechen rebels who recently poured over the border into Dagestan. The Kremlin could also stage-manage a new crisis by yanking the embalmed Lenin out of Red Square and burying him in a cemetery, provoking a largely harmless Communist demonstration that could be overdramatized.

A less confrontational way would be for Yeltsin to resign on a date–November 7, the anniversary of the Bolshevik Revolution, is often mentioned–carefully chosen to wreak the most havoc. Or the Kremlin could ram through a treaty on reunification with Belarus. Putin and Belarus President Alexander Lukashenko recently came to agreement in Minsk on just that. They say that the new state must be consummated before the 2000 election. And once it’s a new country, it will be easy to argue that the rules for a Kremlin election need to be rewritten.

All of the above could even happen more or less simultaneously. That is more likely than an orderly transfer of power to, say, a President-elect Primakov. If Russian democracy does end up definitively jettisoned, I propose we all meet at Starbucks and read about it in the New York Times. One of us can drop our Mochalotta Chill in shock and exclaim: “Oh no, look: Russia’s a dictatorship! Why didn’t they listen to the reformers?”

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