John Thornhill and Charles Clover
Why are the Slavs poor?
While Mr Lazarenko was prime minister in 1996, at least $72m in profits from Ukrainian state factories went to a Cyprus-registered company, Somolli Enterprises. The profits were then deposited in Mr Lazarenko's bank accounts in two Swiss banks before being transferred to accounts in the Caribbean.
The $72m stolen by Pavlo Lazarenko is his to keep. Ukraine will never try to get it back. It will never put Pavlo Lazarenko on trial. It will never extradite him. Why? Because Pavlo Lazarenko stole the money as President Leonid Kuchma's Prime Minister, with full knowledge of Leonid Kuchma, with Leonid Kuchma's blessing, even while Leonid Kuchma himself was stealing from Ukraine along with Pavlo Lazarenko — and now for one thief to put the other on trial would be to expose them both.
And that $72m was just the amount stolen by one Ukrainian parliamentarian within one year. A number of other parliamentarians have their hand in the till, and not just for a single year, and the plunder is by no means limited to parliamentarians. The world gazes upon the two economic basket cases of Ukraine and Russia, and tries to fathom the mystery of their economic underperformance.
Ukrainian gaining of independence in 1991 was a sham. Ukrainians continue languishing in the same state of serfdom that oppressed them prior to independence, and under the same ruling lords. The affluent West does not merely support the plunder of the Slavic peoples, it participates in it. The West deliberately imposes dictatorship upon Ukraine and Russia so as to promote the subjugation of the Slavic world.
The hypocricy of Switzerland sitting on $40bn (all that it can bring itself to admit to at the moment) in stolen cash in its vaults while knitting its brow in disapproval of the plunder of the Slavic peoples tries one's patience.
21 August 1999
RUSSIA: The robbery of nations
Billions of dollars are flowing out of the former Soviet Union,
say John Thornhill and Charles Clover
In the dying days of the Soviet Union, as ethnic tensions flared and the
economy crumbled, the Communist party began secreting part of its vast assets
abroad. Fearful of losing power, the party nomenklatura instructed the KGB to set up a web
of foreign banks and companies to channel their wealth overseas. Soviet embassies, trade
delegations and central bank subsidiaries all became part of this
sophisticated state-sanctioned machine.
Nobody knows how much money leaked out of the Soviet Union in the late
1980s and early 1990s, but it is thought to have run into billions of dollars.
Russia's first post-Soviet government hired Kroll Associates, the private detective
agency, to try to track down where the Communist party money had disappeared. The agency's
inquiries were quickly squashed by powerful interests in Moscow.
Some of the money later returned to Russia and other former Soviet states,
enabling the nomenklatura to buy privatised companies and reassert its political
influence. To this day, the 12 countries of the Commonwealth of Independent States remain
in the grip of former Communist party officials. But much of the cash has probably
remained abroad, invested in everything from houses in London to night clubs in
Budapest and US Treasury bonds. It finances extravagant lifestyles for many Russian
Nor did the flow of money out of Russia cease with the fall of Communism.
move to a market economy may simply have accelerated the process. A money
laundering scandal in New York this week is only the latest example of
capital flight to
emerge. Citing US law enforcement officials, the New York Times newspaper
that the Bank of New York may have been used to handle up to $10bn from
Russian sources since early last year.
If the individuals exporting Russian money have changed, the network
remains largely the same. Many of the experts who worked for the Communists found lucrative
employment as the former Soviet Union lurched towards a market economy in the early 1990s. Oleg Babinov, director of the Moscow office of Risk Advisory Group, a business intelligence consultancy, says criminal gangs, commercial banks and industrial companies were all keen to take advantage of their expertise.
"By the time all the CPSU [Communist Party of the Soviet Union] money had been
laundered and legitimised, the mechanisms that had been set up started
accepting other clients," he says. "It was a business arrangement available to a
fairly large group of people with the right connections."
The New York Times report suggested that the Bank of New York accounts were
linked to Semyon Mogilevich, a 53-year-old businessman originally from
Ukraine, who it said was being investigated by international law authorities. He was
said to be suspected of involvement in drugs running, arms trafficking and
But bankers in Moscow and New York find it inconceivable that Mr Mogilevich
alone could have been handling such colossal sums of money. The $10bn that is
believed to have passed through the New York accounts is equivalent to about 40 per
cent of the Russian government's budget or 6 per cent of the country's
post-devaluation gross domestic product. They suspect some big Russian corporations or banks
must have been involved.
Russia's largest exporters have certainly grown adept at channelling much
of their money offshore. In spite of stiffer central bank regulations introduced
earlier this year, Russian oil and gas companies have seemingly been under-reporting how much
profit they make abroad through convoluted transfer pricing mechanisms. In
spite of running a big trade surplus so far this year, the central bank's reserves
have been under pressure, suggesting there is still an alarming level of capital flight.
Earlier this week, Fitch IBCA, the international credit rating agency,
estimated that $136bn of capital had poured out of Russia between 1993 and 1998, far
exceeding the capital inflows from foreign investors and international financial
Western banks face enormous difficulties in trying to decide on the
legitimacy of much of the money emanating from the former Soviet Union. Some of Russia's biggest
banks and companies are suspected of having close links with criminal
organisations — even if they are not controlled by them. Even the endorsement of a
Russian state organisation means little, given the prevalence of corruption in the
"There is such a mix of legitimate and illegitimate businesses in Russia
that it is extremely difficult to distinguish between the two," says Mr Babinov.
"Criminals have turned into legitimate businessmen. They may run soft drinks companies or
steel plants but they still use the same practices and methods as they did when
they were drug dealers."
Western law enforcement agencies have been stepping up their surveillance of
capital flows from the former Soviet Union. In particular, the Swiss
authorities — stung by controversy over how their banks handled money stolen from Holocaust
victims — have been pursuing investigations into "dirty money" from the former Soviet
Union now sitting in local bank vaults. The Swiss authorities estimate the figure
may be as high as $40bn.
At the request of the Russian prosecutor general, the Swiss authorities
have recently been investigating the foreign finances of Pavel Borodin, a top Kremlin
official, who has placed orders worth hundreds of millions of dollars to remodel the
Kremlin and other government offices. A team of investigators is looking into
allegations that Mr Borodin took bribes from Mabetex, a Swiss contractor involved in the
renovation work. The investigators raided Mabetex's offices in Lugano in January. Both
Mabetex and Mr Borodin fiercely deny the charges.
Earlier this week, the Swiss authorities also froze a series of bank
accounts containing about $65m. The Swiss media have reported the move was linked to an
investigation into Andava, a Swiss-based company, which handled the foreign finances of
Aeroflot, Russia's main international airline. Earlier this year, Russian law
officials issued an arrest warrant against Boris Berezovsky, the influential financier and
powerbroker, in connection with money laundering allegations involving Andava. Mr Berezovsky
subsequently persuaded the prosecutor general to drop the charges against him.
One of the most striking cases to come to light of the connections among
former Soviet officials, large companies and money laundering is in Ukraine. Last
year, the Swiss authorities arrested Pavlo Lazarenko, the former Ukrainian prime
minister who was travelling on a Panamanian passport, and charged him with money
laundering. Yevhym Zviagelsky, one of Mr Lazarenko's predecessors as prime minister,
fled to Israel in 1994 to evade investigators.
The allegations against Mr Lazarenko centred on the looting of many of
Ukraine's most profitable export factories using a variety of barter schemes. Mr
Lazarenko allegedly benefited from a scheme under which a gas trading company received
exclusive rights to sell natural gas to some state enterprises. Essentially, it was a way
to buy valuable export goods at cost, without paying taxes. The goods could
then be exported at below-market prices to offshore trading companies linked to Mr
While Mr Lazarenko was prime minister in 1996, at least $72m in profits
from Ukrainian state factories went to a Cyprus-registered company, Somolli Enterprises. The profits
were then deposited in Mr Lazarenko's bank accounts in two Swiss banks before
being transferred to accounts in the Caribbean.
One of the most alarming features of the case — at least from the Swiss
point of view — was how compliant some Swiss banks appear to have been in dealing with
transactions. The Swiss authorities have launched an investigation into
of the two banks violated local laws. Banque Populaire, which handled $43m
money, was an affiliate of Credit Suisse, one of Switzerland's biggest
banks, at the
Public outcry in the west about "mafia money" from the former Soviet Union
now been chiefly directed at the supposed criminality of much of the
post-Soviet elite. The role of western banks has attracted less attention. Yet the awkward
fact is that many banks — inadvertently or otherwise — have provided services to
Russia's shadier and richer capitalists. This week's events in New York may give them some