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Security Watch: July 24, 2000


24 July 2000, Volume 1, Number 1
NOTE TO READERS: This is the first issue of a new RFE/RL weekly devoted to the rapidly-evolving security, corruption and foreign policy issues in Russia and across the post-communist region. Prepared by Victor Yasmann, it is intended to supplement reports in RFE/RL Newsline� and the other RFE/RL weekly products.

THE POLITICS OF THE CIS ANTI-TERRORIST CENTER. The CIS summit in Moscow 21-23 June supported Russian President Vladimir Putin's call for the establishment of "a joint anti-terrorist center," Russian media reported. To be located in Moscow, paid for by the Russian government and headed by FSB General Boris Mylnikov, the center is to coordinate anti-terrorist work across the CIS. But its political meaning appears likely to be far greater than its terror-fighting - especially since it will have no combat units under its direct control.

By creating the center, Moscow is visibly trying to revitalize the Commonwealth of Independent States by invoking the threat of a common enemy and to gain support for Russian policies in Chechnya. Because the 12 members of the CIS face such different security challenges and because they do not agree on Chechnya, Moscow's explicit goals are unlikely to be realized. But Putin may be counting on something else: the skills and personality of the man he has named to head it.

A longtime veteran of the KGB, Mylnikov comes from St. Petersburg. During the Soviet period, he worked in the KGB's 5th Chief Directorate which was responsible for combating "hostile ideologies" and tracking down dissidents. Later he moved to Ekaterinburg and Stavropol. Last year, when Putin was still FSB director, he recreated the directorate for the protection of the constitutional order and named Mylnikov to be deputy chief of it. In that capacity, Mylnikov played an active role in both Chechen campaigns and adopted a style that "Kommersant-Daily" said marks him as "a real Andropovite."

WHO IS TO BLAME? At the emergency meeting of Russian military and security commandeers in Mozdok, President Vladimir Putin sharply criticized defense minister Igor Sergeev and interior minister Vladimir Rushailo for allowing the coordinated Chechen attack on 2 July which claimed more than 50 Russian lives. He warned the two that they bear responsibility for all aspects of the command of the "anti-terrorist" operation there, ORT reported on 6 July. Meanwhile, Viktor Kazantsev, former top military commander in Chechnya and now Putin's appointee to head the South super-district has hinted that the FSB shares responsibility as well. "Now is the time, when the special services must come on the forefront in the Chechen republic and work there actively" Kazantsev told Nezavisimaya gazeta on 6 June.

EMBEZZLEMENT AT THE RUSSIAN DEFENSE MINISTRY. A senior aide in the military prosecutor's office, Andrei Moiseyenkov told NTV on 23 June that his agency has arrested three men for embezzlement of least $5.8 million from the Russian Air force. The three, including an officer, a banker, and a businessman, set up an elaborate scheme in which the latter sold phantom navigation equipment to the air force and the officer signed fictitious receipts.

DZERZHINSKY WON'T RISE IMMEDIATELY. By a vote of 193 to 91, the Duma failed to pass a resolution restoring the monument of the founder of the Soviet secret police, Felix Dzerzhinsky on Lubyanka squire, from which it was removed in August 1991, gazeta.ru reported on 7 July. But Dzerzhinsky may yet return: gazeta.ru has reported that veterans of the KGB are standing guard around the statue where it lies in a Moscow garden to prevent anyone from harming it.

MOSCOW RETAKES CONTROL OF REGIONAL LAW ENFORCEMENT. Under the terms of the recently amended militia law, Moscow now has the power to fire the chiefs of the territorial organs of the interior ministry without having to get the consent of regional leaders, Segodnya reported on 22 June. This new power represents a major blow to regional officials and big city mayors who had always viewed control of the police as a key source of their power. Earlier this year, Moscow Mayor Yuri Luzhkov tried to challenge in court the central government's dismissal of the city's MVD chief. The new law effectively ends that judicial challenge.

FSB SPIES ON YABLOKO. Grigoriy Yavlinsky, the leader of the reformist Yabloko party, has sent a letter to FSB Director Nikolai Patrushev accusing the FSB of spying on his group. Yavlinsky demanded that Patrushev confirm or deny that the FSB was doing so at the urging of President Vladimir Putin. He also called for the investigation of two cases in which Yabloko members were approached by the FSB and asked to spy on the party. One of them, Dmitriy Barkovskiy, told Moskovskiy komsomolets on 14 June that he had been approached by two FSB agents who said they suspected Yabloko of engaging in espionage and asked Barkovskiy to inform on the party. The FSB agents said that they would list his educational deferment and sent him to Chechnya if he refused to cooperate. As a result, Barkovskiy said, he in fact signed an agreement to work for the FSB.

AUDIT CHAMBER EMERGES AS NEW POWER AGENCY. Audit Chamber chief Sergei Stepashin told Kampaniya, no. 22, that his agency will help President Vladimir Putin gain control over regional elites. Stepashin said that his chamber would create joint teams with the interior ministry and the office of the prosecutor general to investigate regional administrations and economic groups working with them. As a result, he noted, the Audit Chamber will eventually shift from a body controlled by the Duma and become "an independent agency of the executive branch" subordinate only to the president. Stepashin said his group planned to launch probes of Gazprom, Rosvooruzhenie, Rospromeksport and ORT as well as pipeline operators on Sakhalin.

RUSSIA INTENSIFIES ANTI-DRUG CAMPAIGN. The Russian Federal Border Guard Service has seized more than 200 kg of drugs at the Tajik-Afghan since the beginning of the year, RIA reported on 21 June. The chief of the Interior Ministry's Center for the Prevention of Trafficking in Illegal Drugs, Oleg Kharochkin, said that his agency recently arrested a leader of the Afghanistan drug cartel as well as two big narco-dealers from Spain and Peru, who were lured onto Russian territory and then seized. Meanwhile, Russian President Putin signed into law an amendment to the country's media law prohibiting "the dissemination and propaganda" in the mass media and computer networks of any information concerning "methods and techniques of preparation, production, acquisition and use" of illegal drugs and their precursors, Russian agencies reported on 22 June.

FSB CHARGES LITHUANIAN IN SPYING FOR USA. The FSB detained a 26-year-old Lithuanian citizen on charges of spying on the FSB for the US Central Intelligence Agency. FSB spokesman Aleksandr Zdanovich said that the ethnic Russian was approached by the CIS in 1999 and asked to use his computer skills to penetrate the Russian spy agency. Lithuanian officials denied the story, pointing out that the man the Russians say they arrested is now in Vilnius. Moreover, gazeta.ru suggested that the Lithuanian's detention represented nothing more than an FSB attempt to retaliate for the arrest in June of retired US Col. George Trofimoff, who has been charged with spying for the KGB during the Cold War. Trofimoff, retired KGB officer Sergei Sokolov said, had been betrayed by Oleg Kalugin who earlier broke with the Soviet-era spy agency and now lives in the United States.

KILLER OF SVR OFFICER ARRESTED. Boris Labusov, a spokesman for Russia's Foreign Intelligence Service (SVR), said his agency was "grateful" to Moscow law enforcement officials for their quick capture of the killer of an unnamed SVR lieutenant colonel, Rozbisnessconsultsing reported on 22 June. The late agent was killed during a mugging attempt in the Russian capital on 19 June.

RUSSIA BLACKLISTED BY MONEY-LAUNDERING TASK FORCE. An international task force on money-laundering, the Finance Action Task Force (FATF), has put Russia on its blacklist of countries which it says do not cooperate against the transfer of illegally acquired assets, AP reported on 22 June. Other countries on the list include Israel, the Bahamas, Cayman Islands, Cook Islands, Dominica, the Grenadines, Lebanon, Liechtenstein, the Marshall Islands, Nauru, Niue, Nevis, Panama, the Philippines, St. Kitts, and St. Vincent.

NEW CONCEPT FOREIGN POLICY STRESSES ECONOMIC SECURITY. President Vladimir Putin has signed the new foreign policy concept, which stresses the primacy of economic interests over the other goals, reported Interfax, June 30. The document identifies the Ministry of the Foreign Affairs as the main movers of the Russian geo-economic goals, in contrast to the past, when its was the task of the KGB foreign intelligence and the ministry of Foreign trade. Among the other priorities of the foreign policy course, is "protection" of the ethnic Russians abroad, especially in the CIS and Baltic countries.

INTELLIGENCE CHIEF NOW NO. 2 AT FOREIGN MINISTRY. Vladimir Putin has appointed the former chief the Foreign intelligence Service (SVR) , Vyacheslav Trubnikov as the first deputy of the minister of foreign affairs and the presidential envoy in the CIS countries., reported Segodnya and Kommersant-daily, 29 June. Trubnikov's appointment suggests a tougher Moscow line toward the CIS and Baltic countries. At the same time, it signals the comeback of Primakov's team to the foreign policy makers as Primakov himself has joined recently the Putin's administration as coordinator of Russia-Moldova settlement.

RUSSIA ADOPTS INFORMATION SECURITY DOCTRINE. The Security Council of Russian Federation has approved a 40-page national information security doctrine on 23 June. President Vladimir Putin, who chairs the council, said that Moscow must create a government structure to manage information issues. The document consists of four sections dealing with protection of constitutional freedoms in information sphere, development of Russian telecommunication and information market, protection national telecommunication systems and intellectual property and informational support of the government. The document uses very militant language concerning both "external" and "internal threats to Russian national security in the information sphere. Among the "internal" threats the doctrine names "abuse of freedom of information" and "misuse of the mass media for restriction of individual right for freedom of conviction" as well as "propaganda of mass culture patterns averse to spiritual norms accepted in Russia." Among the foreign threats, the doctrine lists "use by the Russian and foreign organizations, secret services and criminal entities the special means on impact on individual, group and mass conscience" and "growing dependence of the spiritual, political and economic life of the country from the foreign informational structures."

STATE EMERGENCY LAW IS ADOPTED. The State Duma on 29 June adopted with 359 votes in favor on the first reading a Putin-introduced bill defining the declaration and rules of a government-declared state of emergency. Under its terms, the Russian president can introduce the state of emergency in cases of extreme sociopolitical and criminal situations, violent attempts to change the constitutional order and/or usurp the power, mass disorder as well as technological and ecological catastrophes. During the state of emergency, the president has right to suspend political parties and organizations, to ban the elections and referenda and to restrict the freedom of press by introduction of preliminary censorship. The initial term of the emergency state is 30 days, but it can be extended by presidential edict with consent of the council of Federation. A member of liberal Union of Rights Forces, Viktor Pokhmelkin, said that his faction had withdrawn its own, more democratic variant of this legislation because, in his words, the country "urgently needs a law dealing with emergency situation".

PROSECUTOR GENERAL NAMES NAMES. Former Russian Prosecutor general Yury Skuratov has named names in the apparently ongoing Kremlin corruption and money laundering scandals in his newly published book "The Dragon's Variant" ( Moscow, Detektiv-press, 2000). Skuratov says that he, together with the former Switzerland Attorney General Carla del Ponte, has investigated several major international corruption affairs, including billions of dollars of money-laundering between 1991 and 1998. Skuratov devotes particular attention to the so-called Mabetex affairs because virtually all senior members of the Kremlin administration in last years of Yeltsin's rule were involved.

Among the prime movers in this case, Skuratov says, were the former chief of Kremlin property management office, Pavel Borodin, the former prime-minister, Victor Chernomyrdin, first vice prime-minister, Oleg Soscovets, and two Switzerland-based businessmen, president of Mabetex SA, Bejghet Pacolli and president of Mercata trading, Viktor Stolpovskikh.

According to the materials collected in legal file of Mabetex, Skuratov continues, in exchange for about $8 million of bribes given by Pacolli to practically all senior members of the Kremlin administration, Mabetex became the channel for multi-billion money laundering operations. In a typical scheme, the funds for a highly overvalued contract obtained by Pacolli were deposited in a Swiss account and divided between of the accomplices in the "deal". When the Kremlin ran out of cash, its contracts under this scheme were paid via oil quotas. And in both cases, money disappeared into the pockets of those involved. In one case, only 300 million of 770 million went into the proper accounts; the remainder went to the private accounts.

Skuratov also explains why the Kremlin felt so threatened by the Mabetex scandal. In that case, the Swiss investigators, led by Carla del Ponte, actually had in hand solid material evidence of the money laundering by the leading figures of the presidential administration. The reason for that, Skuratov says, is that Pacolli listed all the bribes he gave to top Kremlin on his tax declaration as allowed by Swiss law.

END NOTE
OBSTACLES TO WESTERN INVESTMENT IN RUSSIA

By Victor Yasmann

A new book entitled "Why Russia Is Not America' by Andrei Parshev has become an intellectual sensation in Moscow. Published by Moscow's pro-Communist publishing house "Krymskii-Most -9D" and appearing on several internet sites, it has been hotly discussed in web forums ranging from the one maintained by liberal Anatoly Chubais to the Moskovskii komsomolets electronic club as well as by dozens of nationalist and anti-Western web-outlets.

Parshev's book has attracted attention because he considers Russian economic problems through the paradigm of the emerging world market, something few other Russian writers have done. He begins by rejecting the ideas of nostalgic pro-Soviet economists who continue to believe in Russia's uniqueness and those of reformers who see Russia's problems in the incompleteness of its transition to capitalism.

In fact, Parshev notes, both assume that the West want to buy up Russian assets, with the first seeing this as something bad for Russia and the second as something very good. But they are both wrong, Parshev suggests. And he argues that Russian investors actually have little interest in making such purchases because Russian assets are mostly unprofitable. According to Parshev, the decisive indicator of the potential for success of a national economy is the competitiveness of its goods and services, not their quality and certainly not their uniqueness. And this competitiveness is defined entirely by the ratio between the world price as compared to the local cost of production. Unfortunately for Russia, Parshev continues, production costs are far higher on its territory than those virtually anywhere else, a reflection of geographic extent and harsh climate.

He makes his point by quoting the conclusions of Chubais' former deputy Alfred Koch, who said that foreign investors will not find profit in either production or export of Russian mineral wealth: "For the West it is not profitable to recover oil in Siberia, as long as there is Kuwait. There you just moor a tanker at the seashore and you can pump the oil practically directly into it. Nor is it profitable to transport coal from Kuzbass , if it can be delivered by sea from Australia. There, coal deposits are located virtually on the shore so that you load the ship directly from coal conveyor.

Koch continues, "Timber is best obtained not from the Yenisey but from the Amazon, which does not freeze and provides better access. ... Of cause if we recover all our resources and deliver them to the market, they will fetch the world price. But recovery and delivery of our natural resources cost more that anywhere else in the world... Our western partners agree to use the mines and oil fields built up in the Soviet time, but they are not willing to create new production facilities. Unfortunately, they are not fools. It is simply too expensive."

Elsewhere in his book, Parshev cites the conclusion of liberal Russian economist Vladimir Anrianov that Russian industrial production costs are far higher than anywhere else: 2.8 times those of Japan, 2.7 times that of the United States, and 2.3 times those of Western European countries. Parshev then concludes that "we have nothing the West badly wants. Everything we do have is either almost exhausted or separated from us together with Nazarbayev or costs too much to recover. Those who think that our decline can be limited if we transform ourselves into a raw materials supplier to the West are incorrigible optimists.

"Enough illusions, comrades patriots," says Parshev. "We can exist as a source of raw materials only five to six more years. But even our pensioners are planning to live a little longer than that."

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