The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Russia:
Yeltsin, "The Family" and the Bureaucratic Mafia

Jan 13, 2000

Everything went very rapidly: on October 1st, Russian President Boris Yeltsin and his new prime minister, Vladimir Putin, sent their army into Chechnya; December 19th, they won the general election; twelve days later, Yeltsin handed power over to Putin as interim president.

On the same day, December 31, the new president signed his first decree giving Yeltsin, "the members of his family" and "those living with him" "legal and social guarantees." They will, therefore, retain most of the benefits and privileges attached to the presidential position. Above all and this is what really matters for "The Family," as Yeltsin's clan is called in Russia they are granted legal immunity from "arrest, searches of house or person and questioning" for the rest of their lives. This certainly confirms that in Russia the men in power are just a bunch of thieves for whom being in power is the best way to steal with immunity something most people in Russia suspect anyway.

Yeltsin had already moved up the date of the next presidential election, from June to March 23rd. This gives Putin "every chance to win it," says the president of the outgoing Duma, a leading member of the Russian Federation Communist Party. The earlier date certainly gives Yeltsin's protégé the possibility to face the electorate before he makes much of a mark. This can only be an advantage in the context of the Russian situation, where public opinion is quickly becoming hostile to the fact that the Russian army is once again getting stuck deeper in the bloody quagmire of the Chechen war as was the case during the last war in Chechnya. For Yeltsin, it's important that he help get Putin elected; with Putin continuing in power, Yeltsin's clan is less likely to be cut off from political power and Yeltsin will not risk being brought to account or taken to court by people from a rival ruling clan. This prospect had seemed likely only a few months ago.

Last year, when the investigation into financial corruption in Russia widened, this term, "The Family," had been added to the Russian political vocabulary, designating the extended family of President Yeltsin himself, his daughters, his sons-in-law, their friends, their advisers and their backers.

As the activities of "The Family" came under the spotlight, due to judicial enquiries in Switzerland, Russia and the United States, the leaders of the imperialist world toned down their praise of Yeltsin. Moreover, the financial crash of August 1998 made short shrift of the two achievements on which the Yeltsin "reformers" had prided themselves: a rate of inflation which they had officially managed to control (but at what terrible social and economic cost); and a relatively stable political situation (although in just over 18 months, Yeltsin dismissed five prime ministers along with other high ranking bureaucrats).

In the end, as his situation became more unsure, Yeltsin had recourse, once again, to a war a war which has already claimed thousands of civilian lives and resulted in a number of small Chechen towns being completely leveled and which threatens to eliminate Grozny, the Chechen capital, and its 200,000 inhabitants.

"Offshore" Russia

The media exposure of Kremlin "business," initiated in the spring of 1999 by Swiss and Russian judicial sources, continued last summer with new revelations from the U.S. authorities. "Russiagate," this large-scale scandal, 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.

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 these are the real accomplishments of "The Family" and of several other clans among the upper layers of the Russian bureaucracy. The known total, constantly increasing, already amounts to tens of billions of dollars.

At the end of August 1999, USA Today quoted a staffer of the Banking Committee of the U.S. House of Representatives: "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 yet got to the bottom of things."

Carla Del Ponte, the former Swiss attorney general, noted the same iceberg effect several months ago when a growing mass of dollars of dubious Russian origin flowed into the country. Originally counted in millions of dollars only, the total amount of deposits which originated in Eastern Europe and Russia are today estimated to be at least 100 billion dollars. Certainly Swiss banks have long accepted funds from sources which were scarcely more respectable without the judiciary ever involving itself indeed this is one of the foundations of the wealth held by Swiss banks. But in this case, the open extent of the phenomenon has caused officials and others in high places to become worried. The nouveaux riches Russians, so eager to show off their wealth, have not yet begun to master the discretion which the world-wide bourgeoisie and the speculators who evolved in its wake acquired during centuries of such dealings. The German police even spotted one of Yeltsin's daughters, who came to buy a Bavarian castle, being accompanied by the "oligarch" Berezovski, together with a well-known gangster from the Russian-German mafia.

What is surprising is not what the enquiries actually reveal, but the fact that various governments pretend that they are only now "discovering" what has been obvious and common knowledge for years. In southern France, the number of luxury 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. This magazine aspires to teach "good manners" to the newly rich Russians and also keeps them informed of interesting deals on the luxury property market. How could local officials and police not be suspicious?

The reactions in the United States to the "disclosures" of the Yeltsin clan's business dealings echoed the split between the Democratic presidency and the Republican Congress. Clinton was accused of having been silent about the true nature of the Russian regime and of having let it plunder money from international and American aid funds. Vice president Al Gore was particularly criticized, presented as a dye-hard supporter of "The Family" thus anticipating the upcoming presidential election when Gore is likely to be the Democratic party candidate.

This debate was filled with hypocrisy on both sides: the White House actually asked Yeltsin "for explanations" while the Republicans pretended they had just found out that Yeltsin and his relatives are wallowing in corruption and in plunder of their country and that they cultivate relationships with organized crime. And yet, three years ago the business magazine, Forbes, had described Berezovski, Yeltsin's adviser and banker who was then at the head of the National Security Council, as a grandfather of the Russian mafia and Berezovski was unable to successfully sue Forbes for libel.

The amount of capital misappropriated by the Kremlin is so large that Western leaders and their banks could hardly have been caught unawares. When U.S. officials decided to open an investigation, their financial bloodhounds met no 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 any case, given the many corrupt regimes that the United States and other powers have long supported, the indignation expressed by European and U.S. politicians over the financial escapades of the Yeltsin clan is simply play-acting.

The investigations into the role played by a big New York bank in laundering Russian money shows that it sought out this clientele. The bank found Russian 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, then Russia's representative to the IMF from 1992 to 1995 and currently 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, one of Russia's main industrial groups. Of course other banks in other countries are in the same line of business, seeking to establish their links with important parts of the Russian bureaucratic Mafias.

Gangsters in Power and their "Business"

The Russian bureaucracy does not consist only of high-flyers like Berezovski, Yeltsin or Kagalovski. In the background there is a petty bourgeoisie who deals in retail and services and is reflected in the stereotype of the "new Russian" crossing a border to the West carrying a suitcase filled with dollars. But these people do not have access to the icing on the cake they get only the crumbs.

These petty traders attempt to get rich through more or less shady "deals" offered to the population deals which are all the more profitable since 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.

The main difference between these petty traders and the high-ranking bureaucracy is the scale on which the bureaucracy operates, thanks to their proximity to power. Apart from this, they are very similar in the methods they use to make a profit out of the system. While the traders, in bitter competition with each other, survive only thanks to the protection of thugs, the upper echelons of the Russian state also surround themselves with thugs, or rather their mafia bosses. For example, a man called Semion Mogulevich came into the limelight last summer. U.S. police describe him as the leader of an international ring involved in drugs, arms smuggling and prostitution and adviser to the Russian government's leaders on matters concerning money laundering. Then there is General Korzhakov, one of Yeltsin's ex-advisers, who recently spilt the beans in the Italian daily Corriere Della Sera, detailing the financial wheelings and dealings of the president and his daughters. Korzhakov said that his successor, Berezovski, had at one time asked him to kill Luzhkov, the mayor of Moscow. Korzhakov had earlier accused Berezovski of commanding the failed assassination of his rival Gusinski. Even if Korzhakov produced this information only after having been tossed aside by Yeltsin and Berezovski, his accusations are not at all improbable.

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

The career of someone like Berezovski speaks for itself. Close to Yeltsin's clan during the final years of the Soviet Union, he started by launching the company Logovaz, a reseller for the car giant VAZ which produced Lada cars. Taking advantage of the dismantling of the supply network following the breakup of the USSR which prevented VAZ from selling 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 of course 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 center 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 oil distribution and then on to its extraction and refining, when the central and regional authorities began to divide up the former state-controlled oil monopoly. His privileged relationship with Yeltsin's family then enabled him to take control of the incomes and cash of the state-owned 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 in his National Security Council and then General Secretary of the CIS, the body which is supposed to oversee 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 last two jobs, a victim of the ongoing conspiracies and mutual backstabbing within the Kremlin universe.

By merely changing a few details, the same story could be told about the Unexim group (banking, oil, media) which is controlled by Potanin and was maneuvered 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 Gaidar, another of "The Family's" close allies. For some time, Alfabank was given the monopoly to issue Russia's euro-bonds.

Alongside the national "oligarchy," there are other no less powerful syndicates, which rely on high-ranking regional 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 the Sakha-Yakut 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 Krasnoiarsk knows something about this). Whether or not someone is involved in the central oligarchy, everything always depends upon the support received from high-up "krysha" (Russian for protection).

The Oligarchs and the State

These oligarchs are seen by some as the 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 organized crime are not exclusive to Russia. But their economic situation remains dependent on fundamentally unstable factors i.e. their personal status and the favors 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. 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 which have not spared in their efforts to try to 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 stabilization 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 to the law" and the need for a stable state and government, it is their insatiable appetite which appears to be the main obstacle to the stabilization necessary for the existence of a market economy.

It is not because the central state was impotent that Yeltsin always refused to ratify bills passed by the Duma aimed at establishing some controls on 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 Organized Flight of Capital

Import-export activities are in fact favored by the Russian business world. All the oligarchic "empires" rely on activities which find buyers 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, tied closely to those in power, 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 realized that in this sector the yield is high for a relatively low capital investment. For example, the company Savva, which controls 40% of the tobacco market in Russia, was founded with an initial capital of only $5000. Before the financial crisis hit, it had a turnover of 610 million dollars!

Such returns would be of little worth if their beneficiaries were unable to transfer these sums abroad. In order to do so, assuming they benefit from the authorities' "krysha," they have only to over-invoice their imports and to under-invoice their exports. This operation can be repeated as often as necessary. For the new businessmen, this is a necessity. In Russia itself, of what use are the stacks of money which they skim 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 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 mainly as go-betweens linking the international market and Russian companies, helping themselves to a cut on the way. If we were looking for a comparable historical example, it would be 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 big capitalist powers for their existence. But in fact this go-between activity, which is so coveted by the "new Russians," evokes their own past, when they were acting as a go-between linking Soviet society and the state. It was indeed through playing this role that the bureaucracy developed and prospered for decades, plundering nationalized property all the while. 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 multiple new boundaries within the country.

While the framework and the limits of this looting have changed, its character and its targets have not. Businessmen under the protection of the 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%. Neither can the companies pay wages or suppliers, nor 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 privatization would be necessary. 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 for which the same "entrepreneurs" had played a major role by directly looting the state budget. 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, made up of several million more or less financially solvent individuals, was swept away overnight by the 1998 crisis. Under such circumstances, evoking the possibility of a market economy makes no sense whatsoever.

When Russia Finances the West

Nonetheless, 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. But 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 Russian 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. Between 1991 and 1998, the total amount of direct Western investment in Russia came to 10 billion dollars. Even if 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 fall in deep debt. Indeed, Russia is collapsing under the weight of loans which have served only to feed Western export companies, while satisfying the luxurious needs of the local nouveaux riches and keeping 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 "laundered" in Jersey, the Isle of Man or 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. An anemic Russia gives new blood to the American, English, Swiss or French GDP's, or to the worldwide financial speculative bubble.

According to experts, 150-200 billion dollars have been transferred from Russia to the West over a period of 10 years. This gives some idea of the extent of what some people have called "the primitive accumulation of Russian capital" with capital accumulating not in Russia, however, but outside. Inside the country itself, poverty and debt increase. And this debt, the interest on which today represents over 80% of the Russian state's budget, can only create more poverty. Wealth produced by Russia's workers continues to flee the country, accumulating in the West, at a rate of two million dollars 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 be the next president continues in Russia itself. Those who covet that 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 whom the Duma had imposed on Yeltsin just after the 1998 crisis and who was dismissed last May. The public prosecutor suddenly became enthusiastic about investigating the activities of the Swiss company, Mebatex, which held the contract for repairing and restoring the Kremlin and other government buildings. In fact, Mebatex was the relay used by the presidential clan to transfer hidden funds to Switzerland. At the same time, the prosecutor re-opened the enquiry into Aeroflot's financial dealings with a Swiss company. 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, supposedly was "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 the minimum required yet it has managed" 50 billion dollars, which in 1996 alone meant a billion dollars in profits to be shared among the members of the "Family." It is easy to understand why the high-ranking bureaucrats, who have an eye on Yeltsin's former position, want 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 from all those who profited from the system. A spokesman for the electoral block formed by Primakov and Luzhkov expressed this 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."

Month after month, the newspapers commented abundantly about the attempts of "The Family" to retain power. Last summer, when tensions were rising in Chechnya and the first military operations began in neighboring Daghestan, some people saw this as deliberate action by the Kremlin to create a diversion using the situation to declare a state of emergency and thereby delay the elections. (Berezovski perhaps had other reasons since he has large oil interests in the region and maintains good business relations with the armed bands who control the Caucasus.) 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 taking place in Moscow and other towns, which have 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 allowing Yeltsin's clan to go on ruling in the Kremlin, while he declares war on Chechnya? These two hypotheses are not even mutually exclusive, given the way in which the rottenness which pervades the bureaucratic regime has become an increasingly deadly threat hanging over the entire society.