The One That Got Away

The Russian government went as far as misinforming the U.S. Administration on this case. It demonstrates better than any declarations of the Russian officials that the former KGB leadership is as powerful today as it was in the Soviet Union and is as well connected at the top Yeltsin regime and that this regime is corrupt. I would add also that this bank, while executing this money laundering operation, contributed significantly to the Yeltsin electoral campaign in 1992.

As a result, I am not very much optimistic when the Russian law enforcement agency pledges to cooperate with the American counterparts on investigating allegations of money laundering in the Bank of New York or other American financial institutions. When the All-Russia Exchange Bank completed money laundering operations, the president, Alexander Konanykhine, moved to the United States and was granted political asylum in this country. I believe it was a mistake. I believe granting him political asylum was a mistake. There are strong indications that Konanykhine was a willing accomplice of the KGB in the operation, in stealing the money from Russia and laundering the money through Western financial institutions.

Here is a man who conducted not one, but two money laundering operations out of the Willard Hotel directly across the street from the Office of the President of the United States: the KGB money laundering operation, and the European Union Bank, both of which were undertaken by Konanykhine on behalf of Khodorkovsky of Menatep Bank. The CIA, FBI, and the Department of Justice were knowledgeable of the KGB operation and the Federal Reserve Board was knowledgeable of the European Union Bank. Surely all were knowledgeable of Khodorkovsky's involvement with the Bank of New York.
Here is a man who first came to the United States as a member of Yeltsin's first official meeting with President Bush, a man who alleges he financed 50 percent of Yeltsin's presidential campaign, who Yeltsin then rewarded with a dacha previously owned by Mikhail Gorbachev, and who Yeltsin allegedly authorized his then-Chief of Security, General Korzackov, who I understand at the time was a colonel, to assign a Kremlin security deal for Konanykhine's personal safety and protection. Here is a man who was conducting a KGB money laundering operation with tentacles that reached to Boris Yeltsin that was penetrated by the CIA, the President's foreign intelligence operational arm, that was compromised by Aldrich Ames, and no one told the Administration and no one reported it to appropriate Congressional Oversight Committees.

In the matter before us - the question of the many billions in capital that fled Russia to Western shores via the Bank of New York and other Western banks - we have had a window thrown open on what the financial affairs of
a country without property rights, without banks, without the certainty of contract, without an accountable government or a leadership decent enough to be concerned with the national interest or its own citizens' well-being looks like. It's not a pretty picture, is it? But let there be no mistake, in Russia the West has truly been the author of its own misery. And let there be no mistake as to who the victims are, i.e. Western, principally U.S., taxpayers and Russian citizens' whose national legacy was stolen only to be squandered and/or invested in Western real estate and equities markets.
The failure to understand where Communism ended and Russia began Insured that the Clinton Administration's policy towards Russia would be riddled with error and ultimately ineffective. Two mistakes are key to understanding what went wrong and why.
The first mistake was the West's perception of the elected Russian president, Boris Yeltsin; where American triumphalists saw a great democrat determined to destroy the Communist system for freedom's sake, Soviet history will record a usurper. A usurper's first task is to transfomn a thin layer of the self-interested rabble into a constituency. Western assistance, IMF lending and the targeted division of national assets are what provided Boris Yeltsin the initial wherewithal to purchase his constituency of ex-Komsomol [Communist Youth League] bank chiefs, who were given the freedom and the mechanisms to plunder their own country in tandem with a resurgent and more economically competent criminal class. The new elite learned everything about the confiscation of wealth, but nothing about its creation. Worse yet. this new elite thrives in the conditions of chaos and eschews the very stability for which the United States so fervently hopes knowing full well, as they do, that stability will severely hamper their ability to obtain outrageous profits. Consequently, Yeltsin's "reform" government was and is doomed to sustain this parasitic political base composed of the banking oligarchy.
The second mistake lay in a profound misunderstanding of Russian culture and in the Harvard Institute of Intemational Development advisers' disregard for the very basis for their own country's success; property rights.
It was a very grave error. Private property Is not only the most effective instrument of economic organization, it is also the organizational mechanism of an independent civil society. The protection of property, both of individuals' and that of a nation, has justified the existence of and a population's acceptance of the modem state and its public levies.
Russian property rights are tricky; property has never been distributed, but only confiscated and awarded on a cyclical basis. For the big players property exists, as It always has, <\>only where there is power. For the common man, the property right hasn't advanced much beyond custom which prevents the taking of any man's shelter, clothes or tools so long as continuous usage is demonstrable. An additional, purely Slavic feature of the Russians' concept of property is the shared belief that each has a claim upon some part of the whole.
In ancient 'Rus, property existed for the individual as a claim - or an entitlement if you will - to a shared asset, a <\>votchina or "estate", held by all the members of a particular clan. This understanding of property still informs the culture; though Westemers bemoan Moscow mayor Yury Lyuzhkov's retention of the system of the residential permit ("propiska") as an impediment to a flexible labor force, the policy is one of Lyuzhkov's most popular. Muscovites are well-satisfled with a mayor who polices outsiders as they believe any proprietor of such a great estate as Moscow should.
The Russians' failure to accept the Roman concept of private property has compelled them to suffer the coercive powers of the state so that at the very least a civil order, if not a civil society, might be established and sustained. The hackneyed idea that Russians have some special longing for tyranny is a pernicious myth. Rather, they share the common human need for predictable event undergirded by civil and state institutions and their difficult history is the result of their struggle to achieve both in the absence of private property.