“Lord knows where that went,” Boris Yeltsin croaked to one of his Kremlin aides sometime last September. Yeltsin, according to Kremlin sources, was replying to a query from the International Monetary Fund on the expenditure of nearly two billion dollars worth of an IMF “tranche” targeted to stave off impending Russian financial disaster in the summer of 1998. The taxpayers of the Western states who back the IMF ponied up this money (and maybe more) to aid Russian “restructuring” and promote “market reforms” and “democracy.” And what did they get for it? The ruble crashed, Russia defaulted on debts to the West, the government was thrown out, IMF money went unaccounted for, and the West did nothing. At least not then.
Cut to New York, February 2000. According to the Wall Street Journal, the joint investigation by the Federal Reserve and the New York State Banking Department into alleged money laundering by the venerable Bank of New York (BNY) has uncovered not a trace of Russian mafia involvement in questionable transactions invoking billions of dollars, some of them possibly diverted IMF funds, which were funneled through the BNY and offshore affiliates. The Russian media, controlled by the “oligarchs” (the shady businessmen-cum-godfathers who have run Russia since the beginning of the Yeltsin era), crowed about the reports, claiming that the whole thing had been nothing more than another example of Russophobia. At worst, according to the oligarchs’ mouthpieces, the money was transferred offshore by legitimate businessmen wishing to circumvent Russia’s very greedy tax man. Nothing more.
But just as the Journal and its Russian counterparts were smugly huffing about anti-capitalist and anti-Russian propaganda, a couple of Russian-born stool pigeons turned up singing in a federal court in New York. Lucy Edwards, a BNY vice president working at the bank’s London branch, and her husband, Peter Berlin (reportedly still a Russian citizen), admitted that they had been involved in money laundering after all. As reported in the Washington Post, the pair had been working for a group of Moscow banks for four years, setting up front companies and conducting more than 160,000 transactions worth more than seven billion dollars while funneling the money out of Russia and into BNY and other offshore accounts. Merely tax avoidance? Maybe not. Edwards, who with her spouse made nearly two million dollars worth of “commissions” on the transactions, told federal prosecutors drat some of her Russian counterparts at Moscow’s DKB bank were afraid of their customers, since the “businessmen” were often accompanied by young lads toting “machine guns.” Federal investigators want to determine how much of the money came from organized crime. (The machine guns must have tipped them off; the New York Times reported that Edwards and Berlin had been involved in laundering a $300,000 ransom payment for a kidnapped Moscow businessman.)
The Times article mentioned an especially interesting point: Sobinbank, one of the Russian banks that was serviced by Edwards and Berlin, is partly owned by oligarch Aleksandr Smolensky, boss of SBS-Agro, a bankrupt Russian megabank which, in turn, is allegedly partly owned by “oligarch number one,” Boris Berezovsky, and his protégé, Roman Abramovich. Abramovich is known in Russia as the “family’s cashier,” the “family” being the group of Kremlin courtiers and Yeltsin relatives who flooded the Kremlin (and robbed the Russian treasury) under “Czar Boris.”
What the American newspaper accounts did not mention was the suspicion that IMF funds, too, had been funneled through front companies set up by Edwards and Berlin. This suspicion was voiced by some investigators (and a few U.S. congressmen) last fall when the banking scandal story broke. House Banking Committee Chairman Jim Leach (R-IA) held a series of hearings last spring on the scandal, citing claims in Russian and European media that $200 million worth of IMF funds had wound up in the BNY. The hearings were inconclusive, as the IMF pilfering charge was drowned out by a fit of apologetics by IMF and Clinton administration officials.
The scandal itself was very difficult to follow; American media reports (deliberately?) skated over some very curious facts that turned up in Italian and some Russian accounts. First, the numbers of BNY transactions involving Russian accounts sharply increased around the time of the August 1998 Russian financial meltdown, as did the amounts of money invoked. Boris Berezovsky reportedly owned a stake in a BNY affiliate in Switzerland. He, Smolensky, and Abramovich would have been well placed to help the Russian Central Bank divert IMF funds offshore during the August 1998 crisis. For his part, Smolensky has been pleading poverty with his creditors since the August debacle and stood to gain by spiriting SBS-Agro funds abroad, the Russian government has been fretting about the fate of SBS-Agro, which ARKO, the Russian agency in charge of bank “restructuring,” has deemed too big to write off completely. (The World Bank, among other semi-official institutions, has been helping Russia bear the costs of “restructuring” a slew of bankrupt and inefficient Russian enterprises. Russian financial institutions, we arc told, are practically broke, and the Russian government is doing all it can.) Meanwhile, Abramovich and Berezovsky, both of whom were crying poverty, have recently bought 70 percent of Russia’s aluminum production capacity. Nobody knows where they got the money.
Second, Russian sources within the state auditing apparatus maintain that nearly two billion dollars of IMF and World Bank funds, some of which were designated as part of an emergency IMF “stabilization credit” to Russia at the time of the crisis, were diverted to offshore banks set up by the Russian Central Bank. (Remember the IMF’s demand following the crisis that the Russian Central Bank sell off its offshore affiliates?) This money, which allegedly never made it into Central Bank accounts, could have wound up in the BNY or its web of affiliates. Moreover, the Central Bank had been illegally speculating on GKO’s—the short-term, high-return securities that formed the “GKO Pyramid” that financed the Russian budget—with its own currency reserves and Russian budget funds, a definite nono in the eyes of the IMF. After all, the IMF billions were supposed to bolster the Central Bank’s currency reserves, not its stake for the GKO crapshoot. Sergei Dubinin, Russian Central Bank chief at the time, sharply denied that any IMF funds had been diverted—and he was replaced thereafter by Viktor Gerashenko, a banker who was widely respected in the West and trusted by the IMF. Gerashenko also founded FIMACO, the notorious offshore Central Bank affiliate that was conceived as a means of spiriting Communist Party gold out of a collapsing Soviet Union and later was likely a transit point for some diverted Western loans.
Third, the IMF knew all about the chicanery, but kept its collective mouth shut, as did numerous American and European bureaucrats and politicians. Nikolai Gonchar, at the time a Russian Duma deputy and member of the Duma Budget Committee, told La Stampa last fall that the IMF “knew everything” about the diverted funds. According to Gonchar, the IMF was presented with an audit of the Central Bank in 1995 that showed that the bank was diverting foreign loans abroad to Gerashenko’s HMACO. Moskovsky Komsomolets Leonid Krutakoy, writing in August 1999, claimed that he knew the reason for the IMF’s silence: Western speculators were playing the CKO game as well. They—like the oligarchs, the Russian government, Western politicos, and the IMF—foresaw the coming collapse and convinced the IMF to cough up a “stabilization loan” as a means of temporarily bolstering the weakening ruble so that they could withdraw their investments from Russia without incurring heavy losses. The only problem was that the Central Bankers—and oligarchs—were not born yesterday. They did not even bother depositing the IMF cash in Central Bank accounts before sending it out of the country. The money went immediately to offshore accounts.
Krutakov’s explanation makes perfect sense, but it does not explain everything. Why does the IMF continue to stonewall about the machinations of the Russian Central Bank and the oligarchs, claiming to this day that no IMF funds were diverted? (It is impossible to believe that such a corrupt group of opportunists as the Russian bureaucracy and the oligarchs would have passed up this golden opportunity.) And why did the Clinton administration—and its nominal opposition in Congress—drop the whole thing at the end of last year? Why has nobody brought up the question of embezzlement of IMF funds? Chronicles readers are already familiar with the theory that the entire BNY/IMF scandal was orchestrated by American elites as part of pre-election maneuvering. (See “Banking on Boris” in the December 1999 and January 2000 Chronicles.)
The pre-election theory is supported by the fact that Russia held its special presidential election on March 26 and that the interests of both Washington and Moscow elites appear to be served by a temporary revival of the BNY scandal (without any mention of the IMF if possible; no member of the global elite wants to discredit such an important organ of the nascent world government). The flagship weekly of Russia’s nationalist movement, Zavtra, carried a report in its “Tablo” section in early February, before the revival of the BNY scandal in the American press, on Secretary of State Madeleine Albright’s recent meeting with Vladimir Putin, Yeltsin’s designated heir. According to Zavtra‘s informers, Albright outlined a possible “secret agreement” between the Kremlin and the White House concerning “mutual cooperation in the period of the election cycle.” Albright allegedly secured a promise from Putin that the Duma would approve the START II treaty in return for a merely feigned anti-Russian campaign in the United States, the aim of which is to help Al Gore’s presidentidal campaign. Presumably, the American side would also ease up on the Chechny a issue. (Clinton’s criticisms have been much less strident than the Europeans’.) According to the Zavtra sources, the recent seizure of a Russian tanker by American warships in the Persian Gulf was part of the “secret agreement.” More interesting, though, is Zavtra‘s contention that the Americans would revive, for a time, their “struggle ” with Russia’s “financial mafia.” The paper claimed that Putin might use the opportunity to sacrifice a disposable member of the Russian oligarchy to burnish his anti-corruption credentials both at home and abroad. The New York Times and Washington Post articles were published the following week. But the bottom line (for American taxpayers especially) is that the Great Elite IMF Crapshoot will continue and that the questions raised by the renewed BNY scandal will likely go unanswered.