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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, September 15, 1999

Russian Federation


Warlords Deny Involvement in Moscow Blasts

· Investigators have found new evidence which indicates that the two apartment bombings in Moscow are linked, and has detained three people with two suspects still on the loose. Authorities are investigating a truck that may have been involved in bringing explosives to Moscow. Police suspect that explosive material and bombs were transported to the capital hidden in food cargoes. Deputy Moscow police chief Alexander VELDYAYEV said that about 19 tons of explosives were delivered disguised as sugar. His forces and intelligence services have discovered how the two attacks were carried out. He said, "It is now an established fact the terrorist attacks were carried out by Chechen fighters. They used people with Slav appearances." Prime Minister Vladimir PUTIN, speaking to the Russian State Duma, said the North Caucasian republic is a "vast terrorist camp" and called for the temporary sealing of borders with Chechnya as well as economic sanctions. He also called for the handing over of the criminals from Chechnya. Both Shamil BASAYEV and KHATTAB, who have been leading rebels against Russian troops in Daghestan, have denied being behind the Moscow blasts. KHATTAB said, "We would not like to be akin to those who kill sleeping civilians with bombs and shells." This is a complete turn-about from his Thursday statement, "From now on we will not only fight against Russian fighter jets [and] tanks. From now on, they will get our bombs everywhere. Let Russia await our explosions blasting through their cities. I swear we will do it." Chechen Deputy Prime Minister Kazbek MAKHASHEV denied Chechnya's involvement and condemned PUTIN's Tuesday's comments. Chechnya's stance is that the explosions are a product of political tensions in Moscow. "The purpose of these acts is to solve

internal political problem connected with a unprecedented power struggle in Moscow," according to a Chechen official. One theory is that the attacks were staged to discredit Moscow Mayor Yuri LUZHKOV and justify the introduction of a national state of emergency. LUZHKOV and PRIMAKOV are against declaring a state of emergency, which could be used to postpone parliamentary and presidential elections. Interior Minister Vladimir RUSHAILO has played up the possible international links between KHATTAB and Osama BIN LADEN. He has appeal to US and other Western countries for anti-terrorism expertise. He said, "This is the first time Russia has found itself in such a position. That's why we are in contact with our overseas colleagues who have a great deal of experience in fighting terrorism."

Chechens In Moscow Targeted As Suspects

· Russian Police have stepped up their patrols and searches of subway stations, outdoor markets and busy intersections throughout Moscow demanding identity documents. If citizens fail to produce residency papers, they are fined and given three days to bring it to authorities or they will be deported. Baring the brunt of this old Soviet practice are thousand of dark skinned natives of Daghestan, Chechnya, Igushetia, and other regions of the Caucasus Mountainous region. One resident, who fled Chechnya after the war demolished her home, said, "No Chechen would have carried out these bombings. Whoever did this made our situation much, much worse." Many people, fearful of bullying police

Today's News Highlights


HOR Passes Arms Bill

Transneft Shuffle Illegal?

European Republics

Latvian Economy Stabilizing

France For Lith Joining EU

South Caucasus & Central Asia

Georgia Worried Over Cordon

Socar Sends Crude Via Georgia

---Sabotage At Supsa Terminal

Uzbek CEC Registers 5 Parties




September 15, 1999

Intercon's Daily

men or suspicious neighbors, are venturing out of their apartments only to buy food, The New York Times reported. It noted that more that 4,200 people from the North Caucasus were stopped by Moscow Police on Tuesday. Most of the inspection has occurred at Moscow's Vnukovo Airport, where planes from the Caucasus arrive, as well as, the Paveletsky railway station where trains arrive from Makhachkala, Daghestan. While Moscow Mayor Yuri LUZHKOV has said, "The main threat is coming from Chechnya," Russian President Boris YELTSIN has said that the enemy, "has no face, nationality or faith." He has urged Russians not to turn the terrorist act into a racist crusade.

Bill Passes On Controlling Arms Transfers

· In a vote of 419 to zero, the US House of Representative passed a bill on Tuesday that would require sanctions against governments or companies that have transferred missile components or technology to Iran. The bill is aimed at penalizing Russian entities that have aided Tehran in it's quest to build a nuclear arsenal. Congress passed a similar bill in 1997, but President CLINTON vetoed it, saying he wanted to solve the problem through methods other than sanctions. House Speaker Dick ARMEY (Rep.-Texas) said that Russia has not become a peaceful and productive free market democracy, "instead, Russia has become a looted and bankrupt zone of nuclear anarchy." On Thursday, the CIA said Russia and North Korea are the leading suppliers of nuclear technology to Iran. The legislation, known as the Iran Nonproliferation Act, requires the President to tell Congress every six months which countries, foreign companies or individuals have helped Iran develop nuclear, chemical or biological weapons or the missiles to carry them. The President is then required to take punitive action against anyone deemed to have breached the prohibition by imposing economic sanctions or suspending military aid. The US has in the past imposed sanctions on Russian companies and research centers including, INOR scientific center, Grafit and Ployus research institutes, Glavkosmos, Baltic State Technical University, Europalace 2000, and MOSO company. Sam GEJDENSON (Dem.-Connecticut) said, "There's great frustration here and in the White House over the failure of the Russian government to get to the point where it can control the proliferation of serious weapons of mass destruction."


Ruble = 25.53/$1.00 (NY rate)

Ruble = 25.48/$1.00 (CB rate)

Ruble = 26.26/1 euro (CB rate)

BNY Scandal Linked To Russian Tax Evasion

· New information surrounding the Bank of New York scandal has formulated into a scheme that is based more on avoiding high taxes in Russia than Mafia money laundering and racketeering. The Wall Street Journal reports that Peter BERLIN, president of Benex International Inc., and Aleksey VOLKOV, head of Torfinex Corp., used a small Queens apartment and several computers to make billion dollar transactions to hide the true amount of money paid to a suppliers, thus reducing the amount of import duties and taxes owed on a business deal. In the mid-1990s in an attempt to combat cheating, the Russian government canceled duty-free privileges of various supposed charities that importers had been hiding behind. This forced Russian businesses to seek new ways to avoid duties. The financial operations of importers linked to the Benex-Torfinex scheme appear to have violated Russian laws, but it may be hard for investigators to prove that their transactions constitute money laundering. BERLIN was known as the go-to-guy for thousand of Russian businessmen traveling to the US and VOLKOV helped the businessmen complete their deals by monitoring the flow of their money. In a typical transaction, a company would pay the supplier one third of the amount through its formal account and submit an invoice to the Central Bank for the release of the required foreign currency. The company would then, through a non-resident account at the same Russian bank, send the remainder of the money due to the supplier to the Benex account at the Bank of New York. That money would then be shifted in a few hours to the supplier. The key to the operation was speed. Torfinex began expanding its wire-transfer services to a second account and formally applied for a license to operate that service with the New York State Banking Department. Torfinex never was approved for the license. This appears to be "a hook" that prosecutors could use to build a racketeering case involving Torfinex, Benex, and other companies linked to them. As the newspaper reports, the US law requires that prosecutors prove that the funds laundered stem from a specific illegal activity

When you need to know it as it happens




September 15, 1999

Intercon's Daily

and that would probably not include transferring funds to evade Russian taxes.

Barclays To Close Russian Corporate Accounts

· British banking group Barclays Plc has informed clients that it will close some of its remaining Russian-based corporate accounts within 30 days. Barclays had already closed its representative office in Moscow in April. According to a Barclays spokeswoman, Barclays has been phasing down its operations since its investment bank, Barclays Capital, lost $250 million in the collapse of Russia's debt markets in 1998. The decision to close its corporate accounts and operations is to due an environment which is too risky. The spokeswoman said, "The systems have broken down in Russia and therefore we can't do business there," Reuters reported. The bank also denied that their move was prompted by the Bank of New York money laundering scandal. Barclays claimed that it could be a potential target of the scandal investigation.


Transneft Management Shuffle Illegal?

· While Prime Minister Vladimir PUTIN was attending the APEC summit in New Zealand, First Deputy Prime Minister Nikolai AKSYONENKO, who was appointed acting prime minister, on Monday ordered Fuel and Energy Minister Viktor KALYUZHNY to convene a meeting of state representatives in Transneft and of its board and shareholders. Transneft is controls all Russian oil pipelines. KALYUZHNY was ordered at the meeting to propose and vote in favor of removing Transneft head Vladimir SAVELYEV and replace him with vice president of oil giant LUKoil Semyon VAINSHTOK. SAVELYEV, however, is calling the joint meeting illegal and stated he will not relinquish his post. "These actions will not strip me of the powers given to me by Transneft's shareholders, as they contradict Russian law and the company's charter." According to Transneft's charter, the two meetings could not take place simultaneously and shareholders' meeting could not be convened without the board's decision. Deputy fuel and energy minister Vladimir STANEV countered that Russian legislation make an exception to these clauses for companies which are 100 percent controlled by the state, like Transneft. Therefore, he claims that the procedure of SAVELYEV's removal was perfectly legitimate.

European Republics

Latvia's Economy Stabilizing

· Latvia's industrial output figures indicate signs of economic stability. The statistics department said July industrial production rose 1 percent month-on-month, but still fell 9.4 percent year-on-year. Nomura analyst Karine SAROUKHANIAN said, "I think the industrial output certainly shows there's some improvement in economic performance in outlook for Russia or higher EU [European Union] growth yet." The Latvian Labor Board said the unemployment was improving. It had dropped one-tenth of a percentage point in each of the past three months to stand at 9.8 percent in August. The Central bank said its foreign reserves fell 5.4 percent amid demand for foreign currency and the closing of swap positions. Central Bank reserves fell to 644.3 million lats ($1.103 billion) in August from 681.3 million lats at the end of July. The bank was forced to sell $55 million when it stepped in to support the lats currency, which sagged amid worries over the budget deficit.

France Supports Lith.'s EU Membership

· After meeting with Lithuanian Prime Minister Rolandas PAKSAS in Paris last Thursday, French counterpart Lionel JOSPIN voice his support for Lithuania to join the European Union (EU). The Lithuanian prime minister said he and JOSPIN had not discussed the possible terms of Lithuania's accession to the EU. These terms will "depend on our economic development." He also predicted that economic growth can be expected in 2005. Lithuania "will do everything possible to facilitate foreign investments" to Vilnius' economy, PAKSAS said. He also promised to remove "bureaucratic barriers" which prevent foreign entrepreneurs from investing into Lithuania's economy. The prime minister said one of the conditions for the EU membership is the closure of the Ignalina nuclear power plant, which is scheduled for closure in 2005. PAKSAS said his talks with JOSPIN also focused on Lithuania's possible entry to NATO. Vilnius expects to join the Alliance in 2002.

South Caucasus & Central Asia

Georgia To Suffer From Rus-Chechen Fall Out

· Concerns are rising in Georgia as Russia threatens to seal off its borders with Chechnya. Chairman

When you need to know it as it happens




September 15, 1999

Intercon's Daily

of the State Border Guard Department Valery CHKHEIDZE believes that serious problems are possible if Russia defends itself from incursions by cordoning off Chechnya. He pointed out that Georgia remains the only corridor to the outer world and certain forces may try to make the situation uncontrollable. Georgian presidential adviser Levan ALEXIDZE supported CHKHEIDZE's statement, by pointing out that a sanitary cordon around Chechnya will complicate the situation even more. He stressed to Prime News Agency that the creation of a sanitary cordon around Chechnya may create serious problems for Georgia if Chechen gunmen attempt to use its territory for attacks. It was further pointed out by Chairman of the Russian State Duma Committee for Defense that training bases for Chechen gunmen were created in Abkhazia during the Russian-Chechen War. Chairman of the Supreme Council of Abkhazia Tamaz NADAREISHVILI believes the training bases still exist.

Mitsubishi Calls For Tax Exemption

· Japanese Mitsubishi Corporation has demanded to be exempt from taxes over the life of its contract to build dock number 15 in the Port of Poti. A Mitsubishi representative in a meeting with Georgian State Minister Vazha LORDKIPANIDZE pointed out that a 2 percent credit of $55 million allocated by the Japanese Eximbank for the building in quite preferential, PNA reported. The Japanese side is hoping for support from the Georgian government. Director of the Port of Poti Jemal INAISHVILI stressed that high taxes create a serious problem for the realization of the joint project. Despite the fact that exemption from taxes is a violation of Georgian legislation, LORDKIPANIDZE will hold consultations with the parliament to try and resolve the problem. He pointed out that the Georgian government attaches great importance to its cooperation with Mitsubishi.

Socar To Send Crude Shipment Via Georgia

· Azerbaijan State Oil Company's (Socar) foreign economic relations department on Tuesday announced the company will send a trial shipment of

crude by pipeline and rail to a Black Sea Port of Batumi in Georgia shortly. Azerbaijan has been seeking an alternative to the northern route in Russia, where operations have been disrupted by activities in Chechnya. Deputy head of the department Mukhtar BABAYEV said, "The oil that Socar will send to Batumi will be named Socar Offshore Blend Crude Oil (SOBCO) and will be extracted mainly from the Neft Dashlary, Palchyg Tepesi oil fields." It will be stored separately from other crudes that use the same route from Dubeni, Azerbaijan to Batumi, Georgia. The route's operator, Caspian TransCo, said it has a capacity of 400,000 tons of crude per month and is now functioning at about 50 to 70 percent of potential. Socar began talks in August with Caspian TransCo to use the route, which is already being filled with Chevron and Mobil oil from their fields in Kazakhstan and Turkmenistan.

Intercon sources report that an apparent sabotage attempt of the Supsa terminal was discovered by Georgian pipeline officials affiliated with the AIOC. Certain large bolts were removed from the floating boom system of the oil terminal which could have resulted in a major environmental disaster during the loading of a tanker. Coming ahead of elections, this could have been a major blow against the Georgian government. An investigation is being conducted by the Georgian government.

Uzbek CEC Registers Five Parties For Election

· Uzbekistan's Central Election Commission Tuesday stated it has cleared five parties to field candidates for parliamentary elections on December 5th. The parliament is largely a rubber-stamp body, in a country that is strictly ruled by its former Communist boss, President Islam KARIMOV. Commission's spokesman said the candidates must be registered by October 21st, after which they can begin their campaign. In a nation of 24 million, only 12.5 million are expected to vote. The 250-seat parliament is dominated by a pro-presidential party, the People's Democratic Party, which emerged out of the Uzbek Communist Party.

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

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When you need to know it as it happens