What Is Mine Is Mine, What Is Yours Is Negotiable

The Kremlin-Yukos conflict, almost a month old now, has shaken the conventional wisdom many had come to accept about the Vladimir Putin presidency.

In a nutshell, the standard interpretation before this happened was the following: Putin's 2000 agreement with the oligarchs called for strengthening the state without big business getting overly involved in politics. In turn, the state would not meddle too much in the affairs of the business empires - basically, in the Russian economy.

Of course, there are many nuances, but, essentially, the Yukos fracas has put this 'social contract,' as it were, into question.

Eventually, most likely very soon, this conflict will be resolved, but the aftermath may be a strong indicator of how Russian politics and the country's economy will develop in the future.

There are plenty of conjectures floating around about why the Kremlin decided to take on Mikhail Khodorkovsky's company; almost all focussing on the personal political ambitions of some and/or greed of others against the backdrop of the upcoming State Duma and presidential elections. However, most people who have written on this subject have passed over what recent events may imply about Putin's strength as president and the nature and future of his reform project for Russia.

If the aim of the attack is to nationalize Yukos - with the company's shareholders being expropriated - this would mean that Putin has embarked on a truly new policy direction. While this is possible, it would seem almost incredible in light of his actions over the past three years. Nationalizing Yukos would be a significant reversal in the area of property-rights protection and not fit in with what Putin has done as president thus far.

The issue of Putin's ability to control his subordinates needs greater attention. Is he too weak to stand firm against the plans of his former FSB-subordinates-turned-Kremlin-staffers? This may be true to some extent. However, if Putin allows his subordinates to dictate state policy in the sensitive area of "expropriation" of private property, then one must assume that Putin is just as amenable in other areas of policy making, including the state's attitude to direct foreign and portfolio investment into Russia.

This interpretation also seems to be quite incredible. If it were true, then we should expect official, centrist policy to support nationalization and neglect of meaningful property rights, which it does not.

The issue of property rights is, however, of course at the center of the conflict. The real reason is this: Putin's 2000 social contract created the conditions for a temporary truce between the state and the oligarchs. It did not resolve the issue of 'who owns Russia.' The contract put systemic change in Russia on hold, and we are now experiencing the consequences of neglecting this very important issue.

One solution is to codify in law a statute of limitations regarding the revisitation of privatizations during the 1990s - some claim the sooner, the better.

However, this writer supports such a course of action only with the proviso that a social fund be created for at least a decade that directs some of the super-profits generated by the few of the Yeltsin era to programs for the many that lost out as a result of the privatization process. Undoing the privatizations of the 1990s makes little sense at this point, especially if Russia's goal of doubling GDP in 10 years is to become a reality, but keeping those in mind who lost out during the transition away from Communism would contribute to Russia's struggling civil-society project.

It should not be expected that Putin address the issue before the elections - both State Duma and presidential. However, the outcome of the Yukos affair may cause the Kremlin to reflect on how unstable laws concerning property rights may affect economic growth after the widely expected re-election of Putin in the spring - including the creation of a Russia that is foreign-investment friendly.

In many ways, the Yukos affair may be a precursor of what to expect during Putin's second term. Putin has a very ambitious reform agenda, but he does not seem prepared to pay the price for his policy ambitions - giving up some political control by allowing strong private-sector involvement, whether in the person of Khodorkovsky or more generally.

There is no clear way out of this impasse. The unfolding of the State Duma election campaign and its outcome will be the most important indicators of how Putin views this crucial trade-off and whether he is capable of striking the right balance.

This unfortunate state of affairs may have a silver lining, though. Both the oligarchs and the Kremlin are attempting to use the law in their favor. Law in Russia, especially in terms of property rights, is clearly flawed and not up to the hopes and expectations of either the state or moneyed interests. After l'Affair Yukos is settled, both sides will hopefully come to the conclusion that the present system of property rights works to no one's advantage in the longer run.

US President John F. Kennedy was asked what it was like engaging Soviet leader Nikita Khrushchev for the first time. He retorted that dealing with Khrushchev was akin to confronting a man who claimed, 'What is mine is mine, what is yours is negotiable.' The oligarchs and the Kremlin are going through the same drill in a post-Soviet and still-unstable new Russia.

One thing seems to be clear, though: The outcome of the Yukos affair will tell us a lot about how Russia's reform project will continue as well as how much influence Vladimir Putin really has over the endeavor.

Group MENATEP Appoints International Advisory Board

Western experts to help lead global expansion

Washington, D.C., 17 April 2003 – Group MENATEP today announced appointment of a former senior U.S. Treasury Department official, a former German minister of economics, a former member of the British Parliament and an American founder of a major global public affairs firm to its new international advisory board.

The board will serve as a resource to Group MENATEP's leadership to help achieve the company's goals of full integration into the world market and adherence to the highest levels of corporate social responsibility. Creation of the board is one more example of the leadership demonstrated by Group MENATEP and its subsidiary companies in the movement towards transparency and good corporate governance. The Group announced its shareholders and ownership structure last year.

Former U.S. Deputy Treasury Secretary Stuart Eizenstat; Dr. Otto Graf Lambsdorff, former member of the German Bundestag and former German Minister of economics; J. Dudley Fishburn, for many years of The Economist and a former member of the British Parliament; and Margery Kraus, president and chief executive officer of APCO Worldwide, have been appointed as board members.

"I am pleased to announce the creation of the International Advisory Board and look forward to working with this exceptional group of individuals to expand further our global presence," said Platon Lebedev, director of Group MENATEP. "We believe the broad base of contacts and experience of this Board will help us with our efforts to operate more effectively as a world class company."

Eizenstat brings with him 15 years of service in the U.S. government, including appointments in the Clinton Administration from 1993 to 2001 as deputy treasury secretary; undersecretary of state for economic, business and agricultural affairs; undersecretary of commerce for international trade; and U.S. ambassador to the European Union. He was also chief domestic policy advisor to President Carter from 1977 to 1981. Eizenstat currently heads up the international practice at Covington and Burling, a Washington, D.C.-based law firm, and is an expert in international business transactions, trade and regulations. He also serves on the board of directors of numerous corporations and non-profit organizations.

23 December 1999
Financial Times (UK)

Russian mafia link to US campaign funds
By Thomas Catán in New York

Russian émigrés living in the US and believed by authorities to have links with organised crime have made campaign contributions to leading US candidates and political parties in what appears to be an effort to win political influence.

Through family members and businesses, Semyon (Sam) Kislin - identified in a 1994 internal report by the Federal Bureau of Investigation as a member of a Russian crime syndicate - contributed $46,250 to the political campaign of New York mayor Rudolph Giuliani, a Republican, in 1993 and 1997, election records show.

The commodities trader also donated $8,000 to New York senator Charles Schumer, a Democrat, last year, and contributed to several other US political figures. The allegations against him were first publicised by the Center for Public Integrity, the Washington-based non-profit group, earlier this week. Mr Kislin has denied any links with organised crime.

It also emerged that Jacob Bogatin, an associate of Semyon Mogilevich, who is himself alleged by US and UK intelligence authorities to be the head of a Russian crime syndicate, made donations to the National Republican Congressional Committee between 1996 and 1998.

Mr Mogilevich has denied the allegations against him.

Election records show Mr Bogatin contributed at least $2,750 to the Republican campaign group - sometimes under the name of his company, YBM Magnex.

The Philadelphia-based magnet manufacturer, which was founded by Mr Bogatin with Mr Mogilevich, was raided and closed down by US authorities in May 1998. YBM Magnex pleaded guilty to securities fraud and was fined $3m in November 1999.

These and other developments have prompted US investigators to start looking closely at Russian assets and investments in the country, particularly in the New York area, according to people close to the investigations.

Though the political contributions traced so far are not large, they will fuel concerns that money from Russian organised crime could be finding its way into the political system.

"When I was in the Department of State, from time to time we would hear of people associated with organised crime reaching out to members of the [Capitol] Hill," said Jonathan Winer, who until recently served as deputy secretary of state. "The administration briefed Hill members on more than one occasion."

Mr Winer noted that those briefed by the State Department came from both main political parties, and on all occasions dropped contact with the figures under suspicion.

In recent years, two Russian businessmen identified by US authorities as having links to Russian organised crime have turned up at Democratic fundraising events, despite being denied entry visas. Both have appeared in photographs with President Bill Clinton and Vice-President Al Gore.

Yesterday, the office of Senator Schumer said it had performed a background check on Mr Kislin and found nothing on him. "If any of these allegations prove true, we will absolutely return the money," a spokesman said. Mr Giuliani's office could not be reached for comment.

Hearing on the Administration's "National Money Laundering Strategy for 2001"

Prepared Mr. Stuart Eizenstat
Partner
Covington and Burling
10:00 a.m., Wednesday, September 26, 2001 - Dirksen 538

The unhappy experience of the Bank of New York highlights the vulnerability of our financial institutions. The Bank was involved in an alleged money laundering scheme in which more than $7 billion was transmitted from Russia into the Bank through various offshore secrecy jurisdictions. At least one relatively senior official of the Bank was suborned, and she suborned others. We do not know to this day how much of the money came from the accounts of the Russian "Mafiya," how much represented assets stolen in the course of the privatization of state industries — undermining the hopes of Russian reformers — and how much was money hidden to escape legitimate taxation, destroying the fiscal projections on which the reformers depended to lower taxes for ordinary citizens. We do know that the money came out of Russia through accounts in shell banks chartered in places such as the South Pacific island of Nauru. The Deputy Chairman of Russia’s Central Bank has estimated that, in 1998 alone, $70 billion was transferred from Russian banks to accounts in banks chartered in Nauru; not all of that money went to Bank of New York, of course, but none of it was ever intended to stay in Nauru.

~~~

Eizenstat laments the "unhappy experience" of BONY.

Seven billion here, seven billion there--seventy billion in 1998 alone.

Safra cooperated with the FBI; the chief inspector of Monaco Olivier Jude attended the ten-week FBI National Academy in spring of 1999; December 3 of that year Safra was dead with a plausible patsy to take the heat.

The FBI now finds some chicken feed leading to political figures to shut them the hell up.

While the big sleek rats (Clintons, Rubin, Summers, Harvard, et Russoformers) are never mentioned.

~~~

Remarks by Treasury Deputy Secretary Stuart E. Eizenstat before the Anti-Corruption Summit 2000

Washington
September 21, 2000

Second, we will push for a stronger role for the IMF, the World Bank and regional development banks in fighting financial abuse. Tomorrow, Secretary Summers will be leaving for Prague where he will urge the IMF, the World Bank, and the regional development banks to intensify their work in combating financial abuses of the global financial system. This new effort would not represent an expansion of the mandate of these Bretton Woods institutions; on the contrary we believe that the fight against international money laundering is consistent with and integral to the responsibilities of the IMF and the MDBs to protect the credibility and integrity of the international financial system. The IMF and the World Bank already engage in helping countries develop and reform their financial systems, to adopt good governance and to fight corruption. We are not asking the Fund or Bank to be policeman. But we believe both can play a greater role in fighting abuse and preserving the integrity of the international financial system in areas that are within the scope of their mandates.

We will be asking the Fund and Bank to institutionalize the fight against financial abuse through various avenues, including technical assistance, surveillance, financial sector assessments, and lending conditionality, where relevant and appropriate. The Bank and the Fund are uniquely well placed to perform analytic and diagnostic work on financial abuse issues. We also believe country programs and loan operations should incorporate appropriate conditions designed to help countries make real and measurable progress in combating money laundering. In Prague, Secretary Summers will also call on both the Fund and Bank to prepare a joint paper on their respective roles in combating financial abuse, for final consideration next Spring.

~~~

Safra was said to have aided the Russians by laundering $4.8 billion through his Republic Bank. Which he sold to HSBC, finalized the day of his death.

Eizenstat--during the Clinton Administration under Summers--is here assuring the assembly that, the horses having been stolen and unaccounted for, the barn will now be locked.

And now Eizenstat skips off to serve that impeccable institution Menatep.

~~~

May 12, 1999

Stuart Eizenstat, a senior State Department official who was a top adviser to President Jimmy Carter, was nominated by Clinton to replace Summers as deputy secretary.

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