Who Robbed Russia? Did Al Gore know about the massive lootings?

By David Ignatius

Wednesday, August 25, 1999; Page A17

You can see the question rumbling toward Al Gore like a freight train in the night: What did the vice president know about the looting of Russia by organized crime, and why didn't he do more to stop it?

That issue -- what the heck, let's call it "Russiagate" -- has come into sharper focus this month, thanks to some powerful reporting that has highlighted the lawlessness of modern Russia and the acquiescence of the Clinton administration in the process of decline and decay there.

The most dramatic revelation came last week, when the New York Times reported that investigators are exploring whether associates of a suspected Russian mobster named Semyon Mogilevich laundered up to $10 billion through the Bank of New York. Imagine that! A man identified by the FBI as long ago as 1993 as a likely figure in Russian organized crime may have used a U.S. bank to hide his ill-gotten loot.

"The U.S. government has had a difficult time focusing its activities on Russian organized crime," says Jim Moody, a former head of the FBI's organized crime efforts who's now a private security consultant and one of the leading U.S. experts on the new Russian mob.

What makes the Bank of New York case especially intriguing is that one of the bank employees who's suspected of involvement in the money-laundering scheme is married to Konstantin Kagalovsky, the man who was Russia's representative to the International Monetary Fund from 1992 to 1995. Investigators are exploring whether Bank of New York served as one of the conduits for $200 million or more that may have been diverted from IMF loans to Russia, according to the Wall Street Journal.

This alleged diversion of IMF funds could be a political hot potato for Gore. That's because the vice president was a loud advocate of continued IMF lending to Russia, even as evidence mounted that some of it was being misused by the business oligarchs and their political cronies.

Also potentially troubling for Gore is evidence that the Russian central bank speculated with some of the roughly $20 billion the IMF has lent to Russia since 1992. The Post's David Hoffman has reported that the speculation was allegedly managed through a firm operating in the Channel Island of Jersey. The Russians would use these funds partly to speculate in their own securities, buying up short-term government debt known as "GKOs" when the ruble plummeted and selling them back into the market when the price rose.

Gore's biggest vulnerability may be his close relationship with Russia's former prime minister, Viktor Chernomyrdin. The vice president formed what amounted to a political alliance with the Russian premier, despite evidence that Chernomyrdin was in league with the forces of corruption -- and an oligarch himself through his holdings in Gazprom, the state natural-gas monopoly he helped "privatize" under what can only be called dubious circumstances.

"It was all laid out for Gore . . . and he didn't want to hear it," says one knowledgeable former government official, describing 1995 reporting on Chernomyrdin's activities. "Our government knew damn well what was happening."

Pinning down the details of that assertion -- what did Gore know about the involvement of top Russian politicians in corrupt activities and what did he do about it? -- will be a crucial reporting challenge for the U.S. and Russian press as we head into this campaign season. Gore may live to regret his decision to take a leading role in Russia policy, through what was known as the "Gore-Chernomyrdin Commission."

A senior Gore aide responds to the criticism this way: "Do we read the intelligence that's sent us? Yes. Were we concerned about corruption in Russia? Yes. Was it a subject of our conversations with them? Yes. Has the link [with Chernomyrdin] proved valuable? Certainly yes."

Two essays this month by longtime Russia-watchers have helped frame the question. The first was a long article in the New York Times Sunday magazine two weeks ago, examining the question: "Who lost Russia?" It was written by John Lloyd, former Moscow bureau chief for the Financial Times.

Lloyd makes a powerful case that by allowing the oligarchs -- in the name of the free market -- to grab Russia's resources and siphon anything of value into their own offshore bank accounts, the United States poisoned Russia's transition from communism. In the minds of ordinary Russians, Lloyd argues, capitalism became equated with theft.

Damning details of U.S. complicity in this process were added by The Post's former Moscow bureau chief, Robert Kaiser. In an Aug. 15 Outlook piece, Kaiser quoted two former diplomats at the U.S. Embassy in Moscow who watched the mess unfold.

The Gore-Chernomyrdin Commission became "a Soviet-style bureaucracy in which success was mandatory, and any information that would contradict success simply was filed forever," E. Wayne Merry, the head of our political section in Moscow from 1991 to '94, told Kaiser. His successor, Thomas E. Graham Jr., recalled in a separate interview with Kaiser how an embassy cable describing the corrupting role of Russian bankers in the mid-'90s was killed because of fears it might upset people back in Washington.

What makes the Russian case so sad is that the Clinton administration may have squandered one of the most precious assets imaginable -- which is the idealism and goodwill of the Russian people as they emerged from 70 years of Communist rule. The Russia debacle may haunt us for generations. Gore played a key role in that messy process, and he has a lot of explaining to do.

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