House International Relations Committee

Hearing on corruption in Russia

October 7, 1999

Testimony of Konstantin Borovoi

Deputy of the State Duma of the Russian Federation

In the money laundering process, we have three very important stages. The

first is the appearance of the dirty money from different sources (bribery,

criminal money, mixed money). The second is the transferring and

preliminary cleaning of this money. The third stage is the creation, with

that money, of legal economic and political vehicles for the purpose of

laundering more money or insuring the process. I will concentrate on the

first stage because it is the subject of my research, announcements,

official declarations and press conferences in Moscow.

1) Corruption in Russia is the result of a more complicated and widespread

illness. Russia has ceased to be a democratic country and is very quickly

transforming itself into a small and evil empire. This is very dangerous

for itself, its citizens and for its neighbors. Corruption and the

criminalization of power are only the outward appearances of a more general

process.

2) What we now call the enormous size of corruption and criminalization in

Russia was typical for Russia in the years 1995-96. Today, we have to speak

about a new quality of that outward appearance. Now, corruption and

criminalization have become the creative element of power, without which

power cannot exist. To put it simply, it looks this way: if the government

doesn't pay the parliament, they will not accept the budget and pass very

important laws, for example, tax laws. If big companies, for example, oil

or gas, stop paying the government they can disappear--they can be made to

go bankrupt. This scheme is working at the state, region, city, district,

and branch levels, even at the level of individual tax officials or small

enterprises. The most

dangerous thing is that this scheme is working very effectively and

everybody has accepted it. The currency of payment can vary: cash--rubles

or dollars; cheap credits; different privileges; additional support from

the budget; support for the government during election campaigns, and so on.

3) Corruption and the criminalization of power may be the most important

structural element of the system. It is starting to have an influence on

the behavior of the whole system and on the motivations for Russian

internal and foreign policy. How can the list of what should be in the

armory be reconciled with what is actually there in reality? After some

military official has sold weapons worth $200 million dollars, the

discrepancy can only be covered up by a real war, which is happening in

Dagestan and in Chechnya. In the Georgian answer to some of the accusations

by the Russian side, President Shevardnadze, with great

wit, answered that Russian weapons for the Russian people for an internal

Russian war can only come from Russian territory.

In Russian foreign policy we can see some decisions which are the result of

blackmail to get more support from outside for "reform." It is quite clear

that it happened during the process of NATO enlargement, when it was

declared that including Poland is against Russian interests and can destroy

the balance of the forces between Russia and the U.S.

Almost the same thing happened during the Yugoslav events. In 1998, from

September through the summer, an unprecedented anti-Western and

anti-American campaign was being spread. Russian military forces were

planning military confrontation and military conflicts with NATO. In his

official statements, Mr. Ivanov, the Russian Minister of Foreign Affairs,

called the U.S. leadership military criminals. The Russian leadership

unilaterally closed programs of cooperation with the U.S. while, at the

same time, they distributed economic, political and military support to

Milosevich and Saddam Hussein. Also at the same time, Mr. Primakov was very

active in negotiations to gain financial support for Russia and credits

from the IMF and World Bank.

What was the U.S. leadership doing? Protesting? No. The proposal was to

soften Moscow's position in exchange for financial support and credits.

But, I would ask you, for what purpose? To make a new and stronger

democratic system or a new aggressive empire? This is very dangerous for

the world.

4) In 1991 the possibility for democratic development was created in Russia

but the Soviet-type bureaucratic system wasn't destroyed. The

military-oriented, inefficient plans weren't destroyed. And generally, a

sort of competition started between the old economic and political system

and the new rules of behavior and the newly appearing economic enterprises.

In 1992 it was quite clear to me what American policy in relation to Russia

was --American financial support was directed at support of the Soviet type

of power. And, in fact, it was supporting the old political system and old

economy. At that time I was president of the biggest stock exchange and

chairman of different banks and investment companies. Together with other

big entrepreneurs and economic and political experts, we created a special

report about our concerns on that subject. In that report we proved that

support of the old system and the old economy would, in the near future:

* create enormous bribery in Russia;

* support Soviet and empire-oriented political forces; and

* create enormous difficulties for Russia's development.

Or, to put it simply, make it impossible for Russia to be a democratic

country with a free market economy.

During my meetings with IMF, World Bank and U.S. administration officials,

I tried to explain my concerns and our proposals for how to change actual

conditions but, unfortunately, I didn't receive the reaction I expected.

But the reaction, unfortunately, was very typical--such as my meeting with

Mr. Strobe Talbott, who called me a person who doesn't believe in a

democratic future for Russia and too economically liberal even on an

American scale.

Not forgetting my position, I arranged that report like a statement for

President Clinton, which was printed in the Russian media and sent through

the American Embassy. At that time, the general position of the U.S.

administration in relations with Russia was to create an environment for

the self-development of democracy and a market economy in Russia. I would

like to have seen someone try to propose the same way of creating democracy

in post-war Germany in 1945. (In 1948, after the new German constitution

was adopted, more than 70% of Germans were ready to support the return of

the Nazi Party to power.)

5) The results of this mistaken strategy created some paradoxical

situations in relations with Russia. Indirectly, taxpayers' money has now

financed some projects in Cuba, Iraq, Iran and Belgrade. This is the

strategy, by the way, that Primakov and Yeltsin called the creation of a

"multi-polar world." With American taxpayers' money, they are now

developing a new type of weapon and the means for its delivery.

And it is exactly with American taxpayer's money that they are arranging

dirty, anti-humanitarian propaganda campaigns against NATO, the "faces of

the Caucasus nationalities," the Baltic countries, and the United States.

Now, for the first time since the Soviet era, in the minds of the Russian

people, enemy number one is America. In April this year, the entire

anti-American propaganda campaign-- which was led by the Russian

government--reached such a high level that 85% of the Russian population

would be happy to support delivery of military volunteers and weapons, even

S-300 anti-aircraft missile systems, to Milosevich. They would also support

Russia's entering the war against America on the Milosevich side.

6) Even humanitarian and food support for Russia, which started in

September 1998, is subject to the system's corruption and criminalization.

In September 1998, I asked to meet with an American official who was

responsible for delivering and distributing American aid and food support

to Russia. I told him that the person responsible for connections with him,

Vice Prime Minister Kulik, was not the right person for that type of

activity. I gave him information that the food support, which had not yet

appeared in Russia, was already stolen and could not effectively help the

Russian population. And his answer was "Don't worry, we will watch

everything and control everything. Nobody will steal even one grain." Two

weeks ago, information that everything was stolen appeared in the media. I

am telling you about this to explain how even American assistance and help

can be discredited by the actual criminal situation in Russia.

What is to be done?

1) Say good-bye to your illusions about Russia. In Russia there is no

democracy now. It's now only the illusion of democracy, a virtual

democracy. We have to accept it and be more pragmatic, like doctors who

cannot allow personal feelings.

2) Good expertise. A long term program for relations with Russia has to be

created. Together with Mr. Kozyrev, the former Minister of Foreign Affairs,

we created a special institute for the problems of international

cooperation. This institute started a special program for deeper research

into:

a) a long term prognosis for Russia's development in 50 years;

b) project "Different Russia," which is especially for those who cannot

understand the radical changes happening in Russia in the last three years;

c) a realistic appraisal of the forces in Russia, which has to include a

real accounting of the so-called KGB--or Primakov's--group, which has a

great deal of influence now in Russia;

d) accounting for the changes in the Russian people's mentality connected

with the enormous propaganda campaigns in Russia in the last 5 years.

3) Any sort of mindless support to Russia which cannot be correctly checked

and coordinated with the political goals of civilized societies must be

immediately stopped.

4) The most important thing is not to lose the pulse of Russia. This means

that everything stupid has to be excluded from relations with Russia but

everything important for Russian democratic development must be saved and

maybe developed.

We are ready to join that program and be useful to it and present our

expertise in that field.

Johnson's Russia List

#3581

23 October 1999

davidjohnson@erols.com