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Analysis From Washington: Fighting Russia�s Privatization Crimes

Washington, 14 March 1997 (RFE/RL) - The Russian interior ministry has set up a special group to combat crimes arising from the privatization of state property, but the tasks it faces are truly daunting.

As police Lieutenant General Aleksandr Dementiyev admitted on Thursday when he announced the creation of this group, prosecutors have been hampered by the fact that during the period of large-scale privatization, there were no legal acts defining what was a crime.

Moreover, most of the people who have been arrested on "privatization charges" are sufficiently senior that they often enjoy political protection of one kind or another.

For example, Dementiyev said the interior ministry is currently investigating 74 cases involving top government officials, but he said that information about them is being kept secret because "they are of state importance."

Despite these difficulties, Dementiyev took credit for registering 1,700 privatization crimes in 1996 alone, 880 of which have been sent to the courts for trial.

But the difficulties of coping with privatization crimes flow from more than the absence of law and the involvement with senior officials in them. They also arise from five other factors which complicate the work of law enforcement bodies.

First, many of these crimes arise from officials offering state property for sale at far less than its real value. In an interview published in the Moscow newspaper "Rossiiskaya gazeta" on Thursday, Russia's chief prosecutor Yuri Skuratov gave an example of this.

He reported that government officials had offered to sell the Magnitogorsk metallurgical factory to one group of investors for 300 million rubles. But a court vacated the sale when it determined that the plant could in fact be sold for 22 billion rubles.

Such deals between government officials and Russian and foreign businessmen often arise as a result of bribes passing from the latter to the former.

Second, many of these crimes involve foreign investment, something Moscow wants to attract but has not yet found a way to regulate.

Skuratov, for example, said that "we are not against foreign capital presence on our market but such presence must remain within the framework of law."

Because many foreign firms became involved with the Russian economy when the legal framework for privatization was far from clear, any effort to impose laws on these foreign investors now could frighten them and others off.

And that is something the Russian government is certainly opposed to.

Third, many privatization crimes involve the transfer of Russian assets abroad, often in violation of Russian banking and tax laws.

Skuratov complained in his interview that "currency valuables are being taken to other countries illegally with the help of joint enterprises or upfront payments for mythical deliveries which will never be made."

"Our quick-thinking entrepreneurs," Skuratov said," have set up some 60,000 such companies." And they have used them to export capital that should be invested in Russian firms.

Fourth, some privatization crimes concern the transfer into private hands of Russian state property abroad. Skuratov conceded that Moscow does not have "exact data" about just how much property Russia does own beyond its borders.

But the chief prosecutor noted that often "such property can be re-registered as private property in keeping with local laws in some countries, and Russia then loses it forever."

Again, the ability of the Russian authorities to address this problem is small, and it is likely made smaller still by Moscow's concerns over the reaction of foreign investors to any effort to combat such privatization.

And fifth, many privatization crimes involve close personal ties between senior government officials and the people to whom they privatize state assets.

As yet, there is no clear understanding of conflict of interest between public office and private gain. The latest example of this came on Wednesday when Russian President Boris Yeltsin appointed his son-in-law acting director of Aeroflot.

There may be nothing illegal about this, but such nepotism certainly undercuts the message that Moscow must combat the crimes of privatization, a message Yeltsin and other Russian officials have been sending in recent days.