DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, September 13, 1999

Russian Federation

Politics

Another Bomb Demolishes Apartment Building

· Today, designated as a national day of mourning for the victims of a car bomb in Buinaksk, Daghestan and the bombing of a nine story apartment building on Guryanov Street, was marred by a third bombing of a nearby apartment building just after 5 a.m. For the second time in less than a week a bomb has ripped through an apartment building on Kashirskoye Highway 6, killing 52 and demolishing all eight stories. Five people have been pulled from the rubble, but authorities are doubtful more will be recovered alive. Emergency Ministry officer Vladimir LEGOFHIN said, "If anyone is left alive, it would be an absolute wonder." The impact of the blast was powerful, causing destruction of the building and damage to an adjacent school, trees, and cars. The building had 64 apartments and housed a total of 120 people. Almost 60 people are missing and presumed dead. Hours after the blast, police clears people from three nearby buildings due to reports that explosive material had be discovered in them. They later admitted finding industrial solvents, but no explosives. Russian President Boris YELTSIN addressed the nation on television saying that the authorities will "meet the challenge, will respond adequately, with firm, swift measures." He called for an increase in security around "key facilities," which include nuclear power stations, strategically sensitive sites, oil depots and pipelines. YELTSIN said, "Terrorist are trying to scare the Russian people. They are trying to demoralize the state." Moscow Mayor Yuri LUZHKOV said, "The source of this terrorist we are naming as Chechen bandits." No one has claimed responsibility for the bombing. The Federal Security Service (FSB) are checking the scene for clues. Emergency Minister Sergei SHOIGU said after surveying the damage that the explosion appears simi

lar to the blast on Thursday that killed at least 93 people. Head of Moscow's Interior Ministry Department Nikolai KULIKOV said police are looking for Mukhit LAIPANOV, who they believe may be responsible for both blasts. Apparently he owned or rented space on the ground floor of both buildings.

The Russian State Duma parliament is expected to consider a draft law on the state of emergency, Duma Speaker Gennady SELEZNYOV said today. The Duma Security Committee is preparing the draft. YELTSIN and Russian Prime Minister Vladimir PUTIN have been invited to the Duma to report on the nation's crisis. PUTIN, who initially claimed that Thursday's bombing was a natural gas explosion, today said, "This was a clear terrorist attack." He believes there was no need for a state of emergency in Russia, but he earlier proposed posting police outside of every apartment block in Moscow.

Mitrokhin Documents Reveal New Spies

· Two former KGB spies stepped into the public light this weekend announcing their ties to the Soviet Union. Information provided by Vasili MITROKHIN, a dissent KGB officer who defect to Britain in 1992 and contained in a book by Christopher ANDREW "Sword and Shield: Secret History of the KGB" divulges facts about the KGB activities in the US and efforts woo people into disclosing national security secrets. MITROKHIN, now 77 lives in Britain under an assumed name, copied top secret documents by hand and smuggled them from Russian in

Today's News Highlights

Russia

New Laws On Money Laundering

Kagalovsky Wrote Greenspan

Russian Economic Indicators

Sidanko Creditors' Mtg. Illegal?

European Republics

Lith Holds NATO Exercises

South Caucasus & Central Asia

Georgian Crime Decreased

Deputy Stripped Of Immunity

Iran-Tajik To Foster Relations

Politics-Economics-Business

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September 13, 1999

Intercon's Daily

telligence headquarters, sometimes stuffing them in his shoes and pockets. He then hid them in over six trunks which he buried under his house. On Saturday, the 87 year-old Melita NORWOOD, code named Hola, read a statement that for 40 years she provided British atomic secrets to the KGB. While working as a secretary at the British Non-Ferrous Metals Research Association, she took top secret documents from the Tube Alloys project, the cover name for the nuclear weapons program, copied them, and passed them to her KGB contacts. She said idealism, not money, had inspired her. NORWOOD's treachery has been described by intelligence experts as on par with BURGESS, MACLEAN, PHILBY, BLUNT, and CAIRNCROSS.

A former Scotland Yard detective Sergeant John SYMONDS, code named Scot, admitted he carried out regular undercover missions for the KGB between 1972 and 1980. He described how he was trained to seduce women from Western embassies in order to trick them into disclosing secrets. He said he was personally thanked by KGB boss Yuri ANDROPOV, later Soviet President, after he took part in West Germany's biggest post-war spy scandal. He was willing to tell Britain's secret service of his espionage career earlier, but was dismissed a fantasist. MITROKHIN's documents appear to back up his claim. Intercon sources report that more spectacular information will emerge from the MITROKHIN material.

Russian Troops Free More Villages From Rebels

· Russian federal forces fighting in Daghestan on Sunday ousted the Muslim militants from the village of Chabanmakhi. Russian Defense Ministry officials said the militants were also retreating from the village of Karamakhi. Fighting still continues in the Buinaksk and Novolaksk districts. Locals residents said a number of rebels have left the village of Tukhchar. Federal forces have destroyed 12 guerrilla pillboxes, three ammunition dumps, four mortars, eight sniper groups, three command posts and Islamic headquarters in the village of Karamakhi. Despite small successes by federal troops, the rebels fire power remains strong. Islamic Militant rebels shot down a Russian military helicopter in heavy fighting with federal forces in the Daghestan village of Duchi. Two airmen who parachuted were believed to have been killed as they floated to the ground. Chechen President Aslan MASKHADOV on Saturday extended the

state of emergency in the breakaway Russian republic and has asked Chechens fighting in neighboring Daghestan to return. He has called for the mobilization of reservists. He said his government has nothing to do with the insurgents, led by former premier Shamil BASAYEV, and demanded a meeting with YELTSIN. MASKHADOV said Russian air raids on villages along the Chechnya-Daghestan border have left 150 people dead. Russia denies attacking civilians and accuses Chechnya of harboring Islamic rebels fighting for separation from Russia.

Yeltsin Calls For New Money Laundering Law

· Russian President Boris YELTSIN has ordered his representatives in the Russian State Duma and Federation Council to secure Russia's ratification of European conventions on cooperation in the fight against crime. He also wants senior ministers to look into why Russia has not joined an international commission on fighting against money laundering. Russia is sending a team of senior law enforcement officers, from the Federal Security Service (FSB), Interior Ministry, Tax police and other special services, to Washington today to confer with the federal Bureau of Investigation (FBI) and other US authorities on the money laundering investigation at the Bank of New York. The US investigation has been expanded to include dozens of banks worldwide that were involved in transfers of money through Bank of New York accounts. US Ambassador to Russia James COLLINS said Russia should be encouraged to establish a tougher banking system to rule out future financial scandals.

Economy

Ruble =25.01/$1.00 (NY rate)

Ruble = 25.54/$1.00 (CB rate)

Ruble = 26.47/1 euro (CB rate)

APEC Support Russia's WTO Bid

· The Asia-Pacific Economic Cooperation (APEC) countries, at their summit in Auckland, New Zealand, "have supported an intensification of Russia's efforts towards joining the World Trade Organization (WTO) and her participation in the forthcoming WTO ministerial meeting in Seattle, USA, in December this year," Trade Minister Mikhail FRADKOV said. He noted that Russia most likely will participate in the Seattle meeting as observer. FRADKOV is convinced the country's entry into the WTO, which has

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already brought together more than 130 countries, "will enable Russia to achieve an equal access to the world markets, and gain advantages from the international division of labor and trade." He said that as a WTO member it will be easier for Russia to find its place in the globalization processes. FRADKOV highly appreciated the importance of the present APEC forum to Russia. His opinion is that Russia's accession to APEC in 1998 "turned our country to face the region which accounts for almost 50 percent of international trade." The Forum reaffirmed the importance of Russia's participation in the implementation of major energy and transport projects in the Asia-Pacific Region. "We expect an increase in Russia's trade with APEC countries, which now account for only 20 percent in Russia's foreign-trade balance," FRADKOV said.

Suspended Official Wrote To Greenspan

· Suspended Bank of New York officer Natasha Gurfinkel KAGALOVSKY in 1996 wrote a letter to US Federal Reserve Chairman Alan GREENSPAN urging that Inkombank, now under investigation for the money laundering scandal, be allowed to open an office in the US. She wrote that opening a bank branch in the US would, "go along way in serving both US and Russian customers" and "add to the increase of trade between our countries." She also pointed out that Inkombank was her division's, "largest and most active relationship, processing in excess of 250 payments per day." Inkombank withdrew its application to the Federal Reserve just after the August financial crisis, without a citing reason. The bank collapsed in October, reporting $1.5 billion in losses. Investigators are probing into the actions of Inkombank and Uneximbank, which jointly own a 39 percent stake in Sukhoi, a Russian high tech manufacturer of fighter jets. US intelligence reports have linked Inkombank to Russian organized crime. Concerns are growing that some Sukhoi fighter jets were sold to third world countries are capable of carrying nuclear warheads. Senator John KERRY (Dem. Massachusetts) has called for hearings on the effects of money laundering on national banking and international business. He said, "Regardless of whether [US] banks were actively involved in money laundering or were unwitting collaborators of international crime figures, these allegations warrant a re-evaluation of current laws geared to eliminate money laundering."

Russian Economic Indicators

· Russian Finance Minister Mikhail KASYANOV announced that Russia's inflation rate in 1999 would top 40 percent. Inflation from the period of September 1st to 6th, totaled 0.4 percent. The average daily price rise rate in September went up to 0.07 percent from 0.037 percent in August when monthly inflation was 1.2 percent. Consumer prices in Russia grew by 1.2 percent in August and by 29.5 percent over the first eight months of 1999, referring to the Russian Statistical Agency. Industrial production increased by 4.5 percent in January-July, 1999, as against the same period in 1998. Gold and currency reserves did not change in the period from August 27th to September 3rd, 1999, and stood at $11.1 billion. As compared with the beginning of 1999, when the country's reserves amounted to $12.2 billion, reserves shrank by 9 percent.

Business

BP Amoco Loses Ground To Tyumen

· BP Amoco lost ground to Tyumen Oil Company over Sidanko subsidiary Chenogorneft, which supplies one-third of Sidanko's crude oil. On Friday, a creditors' meeting approved an external management plan for Chernogorneft. Under the plan, Chernogorneft could be liquidated and sold off, if it doesn't reach a settlement with creditors by December 12th. Tyumen has said it wants to purchase Chernogorneft should it go into liquidation and it has the power to put Chernogorneft in that phase. Tyumen says its affiliated companies control about 60 percent of Chernogorneft's debts and are likely to block an amicable settlements, The Wall Street Journal reported. Last week, BP Amoco transferred its creditor rights to the state in hopes that the government would halt the Chernogorneft bankruptcy. However, the government failed to intervene in the creditors' meeting. Vice President of BP Amoco Peter CHAROW declared the vote illegal, since it took place in violation of an injunction issued by a Moscow court the found "irregularities" in the actions of Chernogorneft's external manager. He added, "We don't think this is the end of the story by any stretch of the imagination. I think there are ample grounds for the government and the courts to step in and determine that the conduct and the outcome of the creditors' meeting were illegal."

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European Republics

Lithuanian-NATO Military Exercises Begin

· This year's biggest military exercises within NATO's Partnership for Peace program began today in Lithuania. More than 1,000 servicemen of Germany, Poland, Denmark, Romania and Lithuania are participating in the maneuvers which are held at a former Soviet military base in central Lithuania. The main goal of the exercises, called the Amber Hope, is to train Lithuanian and foreign servicemen for international peacekeeping operations. Since Lithuania and Poland have formed a joint peacekeeping battalion, the Lithpolbat, special attention will be paid to their interaction. The exercises will last until September 21st.

South Caucasus & Central Asia

Georgian Crime Rate Declines

· The crime rate has declined in Georgia over the past four years, falling 55 percent. Interior Minister Kakha TARGAMADZE on Sunday noted that a total of 19,865 crimes were committed in Georgia during the period of 1992 to 1995, compared with the period of 1996 to 1999 when only 11,000 crimes were committed. In his words, the murder rate has dropped by 3.5 times. It was 878 in 1992 to 1995, and 243 in 1996 to 1999. The number of other grave crimes has been cut in half from 8,700 to 3,400 in 1996 to 1999. The police solved 30 percent of grave crimes and 40 percent of murder in 1992 to 1995, the index of 1996 to 1999 was 86 and 87 percent correspondingly, the minister said. TARGAMADZE remarked that the crime situation in Georgia has stabilized.

Georgian Parliamentary Elections Scheduled

· The citizens of Georgia will elect a new parliament on Sunday October 31st from 51 political parties. The Central Election Commission (CEC) spokeswoman Natia DZHAKHIA said, "The CEC has finished registration of parties and blocs and confirmed the list of electoral groups which will take part in the poll." Analysts predict a tough electoral battle for

votes between the ruling Citizens' Union party lead by President Eduard SHEVARDNADZE and the Batumi Alliance, which includes the Socialist Party, Traditionalist Party, Revival Party by the headed by Aslan ABASHIDZE, and others. The new 235-member parliament will be elected for four years, consisting of 150 deputies elections from party lists and 85 elected from single-mandate constituencies. The list of individual candidates will be released on September 25th. Parties or electoral groups have to collect 5,000 signatures to participate and individual candidates must collect 1,000 signatures, although requirements are waived for parties or individuals who already hold seats. Ahead of elections, Parliamentary Chairman Zurab ZHVANIA commented on the success of the 1995 elected parliament. He said by adopting 650 new laws, Georgia was finally delivered from the Soviet legislation and created a completely original legislative model in Eastern Europe.

Meanwhile, because of the overwhelming evidence discovered by the Interior and Security Ministries, Georgia's parliamentary deputy Boris KAKUBAVA was stripped of his immunity. He is suspected of taking part in the plot to kill SHEVARDNADZE, which was discovered in May. Deputies voted 106 to 4, at its final session before elections, to back the request of prosecutor Revaz KIPIANI for the arrest of KAKUBAVA, of the Nationalist Patriotic Front Party. KIPIANI said, "The investigation showed that KAKUBAVA was involved in this criminal case."His whereabouts are unknown. A reliable Intercon source says that KAKUBAVA is hiding out in Moscow.

Iran To Foster Relations With Tajikistan

· Iranian Foreign Minister Kamal KHARRAZI is arriving in Dushanbe today for talks with Tajik President Emomali RAKHMONOV, national parliament speaker Safarali RADZHABOV, Prime Minister Yakhye AZIMOV and Foreign Minister Talbak NAZAROV. He will also make a fact-finding visit to the Leninabad region. Ahead of his visit, KHARRAZI said that on the agenda are discussions of development of bilateral relations in the political economic and cultural spheres, as well as aspects of regional security.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $950.00 per year. A discount is

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