Russia - Through the "Russia-gate" looking glass

From Lutte de Classe #45 (published in Class Struggle #29 - Britain)
September 1999

A new term has recently been added to Russian political vocabulary: "The Family". It was originally used by the press to designate the extended family of President Yeltsin - himself, his daughters, his son-in-laws, their friends, their financial advisors and their backers behind the scenes. This is because the activities of these people have come under the spotlight as a result of judicial enquiries being conducted in Switzerland, Russia and the United States.

Ironically, it now seems that the leaders of the imperialist world have forgotten their own sense of "family", and have toned down their praise of Yeltsin. They no longer go into raptures over the extent of the "reforms", which were supposed to transform Russia into a market economy, thus enabling it to integrate into world-wide economy dominated and controlled by capitalism.

Among other things, the financial crash of August 1998 made short shrift of the two achievements on which the Yeltsin "reformers" prided themselves: a rate of inflation which they had officially managed to control (but at what social and economical cost?) and a relatively stable political situation (yet in just over 18 months, Yeltsin dismissed five prime ministers along with other high ranking bureaucrats).

Added to this, now there is "Russiagate" - a large- scale scandal which gives some idea of the extent of gangsterism within the Russian bureaucracy and the shamelessness with which it bleeds the country, its people and its economy dry.

"Offshore" Russia

The media exposure of Kremlin "business" which was initiated in the Spring by Swiss and Russian judicial sources continued this Summer with new revelations from America.

Widespread misappropriation of international funds, in particular from the IMF (International Monetary Fund), laundering of money in collaboration with various mafia groups and embezzlement of the reserves of the Central Bank of Russia figure on the honours list of The Family and of several other clans among the upper layers of the Russian bureaucracy. The total is constantly increasing , amounting to tens of billions of dollars.

In "USA Today", at the end of August, a civil servant from the Banking Commission of the US Chamber of Representatives stated: "we are up against the most wide-scale operation ever discovered and the 10 to 15 billion dollars of funds embezzled (by Yeltsin's entourage through the intermediary of a single New York bank) are but the tip of the iceberg. The deeper we dig the more we discover. It seems that we have not got to the bottom of things yet."

Carla Del Ponte, the Swiss Attorney General had already noticed this several months ago, when a growing mass of dollars flowing into the country, of dubious Russian origin, could be counted in millions of dollars only. The Swiss authorities estimate the total amount of deposits which originate in Eastern Europe and Russia to be $100 billion. Swiss banks have known other times - and indeed this is one of the foundations of their wealth - where funds arrived from sources which were scarcely more respectable, without the judiciary becoming involved. But in this case the extent of the phenomenon has caused those in high places to begin to get worried. The world-wide bourgeoisie and the speculators who evolved in their wake, acquired the necessary discretion for such dealings over centuries. But these Russian "nouveaux riches", so keen to show off their wealth, have not (yet) even begun to master it. The German police even spotted one of Yeltsin's daughters who came to buy a Bavarian castle accompanied by the "oligarch" Berezovski, together with a well- known member of the Russian-German mafia.

Under such circumstances, what is surprising is not what the enquiries actually reveal, but the fact that the governments are only now "discovering" what has been obvious - and common knowledge - for years.

In southern France, the number of luxurious villas and yachts bought by the "new Russians" as well as the impact of their luxurious lifestyle has led one "entrepreneur" to launch a chic Russian-language magazine called - "Bereg" (Russian for "coast"). This magazine aspires to teach "good manners" to the new Russian rich and also keeps them informed of interesting deals on the luxury property market. And the lawyers, local officials and police are not suspicious?

In any case, given the many corrupt regimes that the United States and the other powers have supported for a long time (and still do), the indignation or surprise expressed by some politicians in Europe and America over the financial escapades of the Yeltsin clan is simply play-acting. The amount of capital misappropriated by the Kremlin is so large that Western leaders and their banks would have a hard time making anyone believe that they were caught unawares. In any case the American bloodhounds have not come across any insurmountable obstacles in tracking down these funds, the paths they have taken, nor the dates of the founding of the off-shore companies used by The Family.

In fact the investigations into the role played by an American bank in laundering Russian money shows how this bank, like others, actually coveted such clientele. The bank found this business so attractive that it recruited Konstantin Kagalovski's wife as its Vice- President. Kagalovski, a former advisor to Yeltsin, was head of the Russian bank Menatep, before he became Russia's representative to the IMF from 1992-1995 and is currently the president of Yuksi, a Russian oil company. Of course Menatep, Yuksi and other oil companies do business with this American bank, as do Avtovaz and Sibneft, two companies controlled by Berezovski, not to mention other better-known names such as GUM, the Moscow department store, and Red October, Russia's main industrial confectionary group. And of course other banks are in the same line of business: for instance UBS-AG in Germany, Credit Suisse in Switzerland and Eurobank - the latter being registered in France but a descendant of the Bank for Northern Europe, created by the USSR in the 1920's for its banking operations in the West.

Gangsters in power and their "business"

The stereotype of the "new Russian" crossing a border to the West carrying a suitcase filled with dollars certainly no longer applies at this level. Not that this type of individual does not still exist. The Russian bureaucracy does not only consist of high-flyers like Berezovski, Yeltsin or Kagalovski. In the background there is a petty bourgeoisie who deal in retail and services. But these people do not have access to the icing on the cake - they only get the crumbs.

However, if one looks closer, it is merely the scale on which the high-ranking bureaucracy operates, thanks to their proximity to power, which is different. Apart from this, they are very similar to the petty traders who attempt to get rich through more or less dodgy "deals". These deals are all the more profitable as the population does not really have a choice. The reasonably-priced services formerly provided by the state in many areas related to social life (teaching, housing, healthcare, holidays, commercial distribution etc) have today either fallen by the wayside due to lack of subsidies or have simply disappeared.

What is obvious at first sight is the similarity between the methods used by all those making a profit out of the system. While traders only survive thanks to the protection of thugs, for fear of being "done over" by others of their kind, the presence of these thugs, or rather of their mafia bosses, has frequently been noticed around the upper echelons of the Russian state. There are many examples. For instance the case of a man called Semion Moghilevitch who came into the limelight last Summer. The US police describe him as the leader of an international ring involved in drugs, arms and prostitution - and advisor to the Russian government's leaders on matters concerning money laundering. Likewise General Korjakov, one of Yeltsin's ex- advisers, who recently spilt the beans in the Italian daily Corriere Della Sera over the financial wheelings and dealings of the president and his daughters. He also said that his successor, Berezovski, had at one time asked him to kill Luzhkov, the mayor of Moscow.

It is due to such methods that Berezovski, Goussinski Khodorovski, Potanin and a handful of other leading speculators, implicated by the investigations of the Swiss police, have acquired their "oligarch" status.

The career of someone like Berezovski speaks for itself. Close to Yeltsin's clan during the last period of the USSR he started by launching a company - Logovaz - a reseller for the car giant VAZ (Lada cars). Taking advantage of the dismantling of the supply network following the breakup of the USSR and VAZ's incapacity to sell its product, he imposed himself as the exclusive Lada distributor by violent and corrupt means - and with a little help from his political allies. Using these same means and with the complicity of his patrons, the directors of VAZ, he forced this state-controlled company to sell him its cars at such low prices that according to experts his profit margin was around 100%. He also earned considerable amounts of money by delaying his payments to VAZ at a time when inflation bordered on and even topped 1000% per year. This pushed VAZ into virtual bankruptcy (the Russian and Western press preferred to put the blame on "the inefficiency of the state-controlled Soviet economy"). The workers at VAZ were no longer paid. But Berezovski became richer, as did those who - at the centre of the political or economical state apparatus - could have stopped these wheelings and dealings had they themselves not benefited from them. Berezovski was on his way up. After car distribution he went on to petrol distribution and then on to its extraction and refining, after the central and regional authorities divided up, between themselves, the former state-controlled oil monopoly. His privileged relationship with Yeltsin's family then enabled him to take control of the airways company Aeroflot, then headed by one of Yeltsin's sons-in-law, and then to step into media and advertising. For services rendered, Yeltsin appointed him as the number two of his National Security Council and then General Secretary of the CEI, the body which aims at overseeing 12 of the former 15 Soviet Republics. However Berezovski, who recently declared that he knew of no better business investment than politics, is not always so successful: he was ousted from his previous two jobs, a victim of the on-going conspiracies and mutual back-stabbing within the Kremlin universe.

By merely changing a few details, the same story could be told about the Onexim group (banking, oil, media) which is controlled by Potanin and was manoeuvred right into the hands of top state bureaucrats by Chubais, another of Yeltsin's advisers and ministers. It was Chubais who organised the widescale privatisations of 1994. There is also the Alfa group (hydrocarbons, metals) which maintains close links with Gaïdar, another of The Family's close allies. This explains why for some time Alfabank had a monopoly over the issuing of Russia's euro-bonds.

Alongside the national "oligarchy", there is another is no less powerful syndicate, which relies on regional high-ranking officials and their control over local economies. For example, there is Rossel in the Ural region (steel-works and a military-industrial complex); the president of Tatarstan (oil, KAMAZ automobile group) and the president of Sakha-Yakuti Republic (diamonds and precious metals). As far as the basis and the functioning of these "regional" empires is concerned, they hardly differ from what happens at a central level: they rely on alliances of political and economic power with mafia-like "business" groups (Lebed, the governor of the rich Siberian province of Krasnoïarsk is well aware of this). With or without oligarchic privileges, everything always depends upon the support received from high-up "krycha" (Russian for protection).

The oligarchs and the state

These oligarchs are seen by some as the original prototypes of a bourgeoisie which continues to take root in Russia. In fact they have many features in common with the bourgeoisie: their wealth, lifestyle and sometimes the way they die, because business connections with organised crime are not exclusive to Russia. But their economic situation remains dependent on fundamentally unstable factors - i.e. their personal status and the favours they get from those in political power - instead of being based upon established property relations, sanctioned by the law, defended by the institutions and acknowledged by society. And this fact is not negligible. In Russia economic and social power is still derived from political power and remains generally dependent on it. Moreover a capitalist market economy is far from being established in Russia, to the despair of the imperialist world's institutions, who have not spared their efforts to try and make this come about.

But the oligarchs do not care about ideology. If looting is more profitable and easier than investing in production, then looting it is. The reign of the kalashnikov and private armed bands is not compatible with the stabilisation of property relations and the laws which sanction such relations or a state which is meant to protect them. While the high-ranking oligarchs and their associates often advocate "obedience of the law" and the need for a stable state and government, it is the insatiable appetite displayed by most of them which appears to be the main obstacle to the stabilisation necessary for the existence of a market economy.

It is not because of the central state's impotence that Yeltsin has always refused to ratify the bills presented by the Duma which were aimed at controlling in some way the flow of capital in and out of Russia. If he had, how would thousands of high-ranking bureaucrats and speculators have managed to export so easily the funds which Western authorities claim to have discovered in bank accounts in Switzerland or elsewhere?

The organised flight of capital

Import-export activities are in fact favoured by the Russian business world. All the oligarchic "empires" rely on activities which can find a buyer abroad for products such as hydrocarbons and raw materials. Further down the line imports reap benefits for a wide variety of businessmen. Like the apparatus of the Orthodox church - always well-in with those in power and whose specialities are so-called "humanitarian businesses" and the import of food, mineral water and tobacco. Then there are the thousands of small-scale traders who have realised that in this sector the yield is high for a relatively low capital investment. For instance, the company Savva, which controls 40% of the tobacco market in Russia, was founded with an initial capital of just $5000. Before the financial crisis hit, it had a turnover of $610 million!

Such returns would be of little worth if their beneficiaries were unable to transfer these sums abroad. In order to do so - on condition that they benefit from the authorities' "krycha" - they only have to over-invoice their imports and to under-invoice their exports. This operation can be repeated as often as necessary. These people consider this to be a necessity. Otherwise in Russia itself of what use are the stacks of money which they cream off the economy? They would not even dream of investing in production, except marginally. After all, they became rich by sponging off industrial capital, not by building it up.

As to investing these sums in the financial sphere in Russia, this is hardly an option when the banking system inspires so little trust that many regions and companies have felt it was safer to set up their own banks (the so-called "pocket banks" whose mushrooming was seen by some as evidence of dynamic capitalistic development). It is even less an option after the collapse of the profitable speculation on GKOs (high-interest bonds) and other state bonds in August 1998, which in turn swept away the entire financial system.

So the Russian businessmen do not have a choice. They either give up doing business or they take all their loot out of the country. Under such circumstances they intervene only as go-betweens for the international market and Russian companies, helping themselves to a cut on the way. If one is to find a comparable historical example, it is that of the comprador bourgeois merchants in countries which in the 19th century had not yet reached the stage of capitalist development and relied on the capitalist powers for their existence. But in fact this go-between activity, which is so coveted by the "new Russians", evokes a past which is much closer to them - when they were acting as a go-between for society and the state. It was indeed through playing this role that the bureaucracy developed and prospered for decades out of plundering nationalised property. Under Stalin and his successors the bureaucracy's actions were subject to central control to a certain extent. But their constant attempts to increase their looting eventually resulted in the disintegration of the state and the breakup of the USSR. In its attempts to break through the boundaries imposed on its looting, the bureaucracy has ended up erecting a whole lot of new borders across the country.

But if the framework and the limits of this looting have changed, its character and its targets have not. The businessmen under the protection of bureaucrats (or the bureaucrats themselves) still live off companies which depend largely on public funds, even when they are legally private. Everyone knows the result. The state's coffers are emptied, companies are strangled and the repercussions are felt throughout the economy: companies cannot finance themselves (it is estimated that in the 8 years since the collapse of the USSR, productive investment has fallen by over 80%) and can pay neither wages nor suppliers. Neither can they pay the taxes which would enable the state to finance its infrastructure, pay its civil servants, pensions, etc. This "liquidity crisis", as it is called by those who wish to avoid talking about its real causes, is smothering the entire economy and forcing most companies to revert to barter. If they do pay their employees and suppliers at all, it is in kind, and late.

It takes all the cynicism or the blindness (or both) of the Russian authorities and international finance to claim that so-called private entrepreneurial energy would be more efficient than the "state control" inherited from the USSR, and that to generate such energy more privatisations would be necessary. Except that in Russia "private entrepreneurial energy" actually means the private plunder of what remains of the state-controlled sector - plunder which is exhausting and destroying the economy, drying up sources of investment and pushing the population into ever-increasing destitution. How can these companies which Yeltsin and the IMF regularly call upon to pay their debts and their taxes do so, when they are systematically robbed by the oligarchs, those who have become rich due to "business" and their patrons in power?

This process was not even slowed down by the financial collapse in the summer of 1998 - in which the same "entrepreneurs" played a role by looting the state budget directly. They borrowed massive amounts from the state at a very low interest rate, especially by diverting funds from the Central Bank reserves, and then lent it back to the state by buying bonds paying interest of up to 200%. Everyone, including ministers, presidential advisers, the Yeltsin family, the leaders of the Central Bank, etc.. filled their accounts overseas while deliberately precipitating the country's bankruptcy.]

This speculation by the bureaucrats against the ruble (and their own state) had devastating social consequences. In particular it caused the almost total disappearance of the petty-bourgeoisie, which had been presented both in Russia and in the West as being the soil in which "reforms" would take root - the social and economic basis necessary for the emergence of a market economy. But this layer, previously made up of several million more or less financially solvent individuals, was swept away overnight by last year's crisis. Under such circumstances evoking the possibility of a market economy makes no sense whatsoever.

When Russia finances the West

That being said, the looting of what remains of the economy of the Soviet era still provides at least some fodder for the market, in particular the financial market. Except that this financial market is not in the ex-USSR, but rather in the imperialist countries, those countries whose wealth comes from the exploitation of the rest of the planet. By looting their own country the oligarchs act as bush-beaters for the Western banks. Capitalists from the imperialist countries do not even have to go to the trouble of investing in production to make profits out of Russia - from its working class, that is. It was calculated that between 1991-1998 the total amount of direct Western investment in Russia came to $10 billion. Even supposing that this sum does not include those investments which were purely speculative, $10 billion over a period of 8 years is nothing compared with the size of the Russian economy.

Given the considerable amount of dollars exported by the Russian bureaucracy during the same period, the country could only get into debt. Indeed, Russia is collapsing under the weight of loans which have served only to feed Western export companies in order to satisfy the luxurious needs of the local "nouveaux riches" and to keep local companies more or less in minimum working order. The loans from the IMF and other sources have often ended up in tax havens, either partially or totally, in accounts belonging to bureaucrats and their business friends. From there, they are recycled into investments contributing to the wealth of the Western countries. Some have also been recycled into companies registered in the USA or in Europe, whose owners are Russian, thereby increasing the economic and financial power of this part of the planet, while Russia's economic indicators, such as its GDP, have been plummeting for the last 10 years. Once they have been "laundered" in Jersey, the Isle of Man or in Antigua, the funds embezzled or stolen by "The Family" or other clans among the high-ranking bureaucracy melt into the financial flow of Western capital. In spite of itself an anaemic Russia gives new blood to the American, English, Swiss or French GDPs, or to the worldwide financial speculative bubble.

To get some idea of the extent of what some people have called "the primitive accumulation of Russian capital" - a phenomenon based, however, on capital accumulating not in Russia but outside - it should be enough to say that according to experts $150-200 billion have been transferred from Russia to the West over a period of 10 years. Inside the country itself, poverty and debt increases (the latter feeding the former as the interest on debt represents over 80% of the Russian state's budget). And any wealth produced by the workers of Russia continues to flee the country, accumulating in the West, at a rate of $2 million per month, according to an estimate made by former Prime Minister Primakov.

The sharing out of the loot

In the meantime, the fight over who will succeed Yeltsin as president continues in Russia itself. Those who covet his position - and the perks which come with the job - have encouraged the law courts and the media which they control, to look closely into The Family's business.

This kind of scrutiny had already begun under Primakov, the prime minister who the Duma imposed on Yeltsin just after the 1998 crisis, and who was dismissed last May. The Public Prosecutor suddenly became enthusiastic about conducting enquiries into the activities of the Swiss Company Mébatex, who won the contract for the repair and restoration works of the Kremlin and other government buildings and was in fact the relay used by the presidential clan to transfer hidden funds to Switzerland. At the same time the law courts re-opened the enquiry into Aeroflot's financial dealings with a Swiss company. And it was this public prosecutor, who has since been dismissed by Yeltsin, who was the first to expose the fact that Yeltsin's close allies had set up an off-shore company in Jersey. This company, Fimaco, was meant "to manage the currency reserves of the Central Bank, the IMF credits and the Russian state bonds". Fimaco was set up with a capital of $1000 dollars - the minimum required - yet has "managed" $50 billion, which in 1996 alone meant a billion dollars in profits to be shared amongst the members of the "Family". It is easy to understand why the high-ranking bureaucrats (Primakov and Moscow's mayor Luzhkov) who have an eye on Yeltsin's position, would like to make Yeltsin the sole scapegoat for these scandalous dealings, which sicken the population, who quite rightly see in them the reason for their own sudden poverty. These high-ranking bureaucrats have many reasons to fear that one day the population will demand explanations from the system's leaders and all those who profit from the system. The spokesman of the electoral block formed by Primakov and Luzhkov has expressed the same fear: "they (the members of Yeltsin's family) will be ousted by the people in the elections or people will explode. And it will be terrible."

The newspapers have commented abundantly about the attempts of the present government to retain power. For instance, in the Summer, when tensions were rising in Chechnya and the first military operations began in neighbouring Daghestan, some people saw this as deliberate action by the Kremlin to create a diversion - by using the situation to declare a state of emergency and thereby delay the elections. Even more so, since Berezovski has large oil interests in the region and maintains good business relations with the armed bands who control the Caucasus. And of course, the subsequent bombings and invasion of Chechnya by the Russian army have only kept these speculations going.

The media even put a question mark over the bomb attacks which have been taking place in Moscow and other towns and caused so many deaths. Were they carried out by the Muslim Fundamentalists who fight against Moscow in the Caucasus, or were they ordered by the secret services so as to create a climate of terror, thereby protecting Yeltsin? These two hypotheses are not even mutually exclusive, given the way in which the decay which pervades the bureaucratic regime is becoming an increasingly deadly threat for the entire society.