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

Friday, September 17, 1999

Police Detain Thousands In Crime Sweep

· Moscow police have detained more than 11,000 suspects, but only about 30 are being held under suspicion of involvement in the wave of bombings. About 2,200 people were already on the police wanted list and almost 9,000 were arrested for unrelated crimes. Police began randomly stopping and searching people on subways, in markets, and at apartment buildings checking for proper identity papers. Many of those being targeted in searches are from the Caucasus region. Prime Minister Vladimir PUTIN signed a decree calling on law enforcement and other agencies to develop plans within three days to protect industry, transportation, communications, food processing centers and nuclear complexes. President Boris YELTSIN also called for sealing off transportation links to Chechnya.

All Russia-Fatherland Bloc To Break Up?

· All Russia-Fatherland block may not survive to the presidential elections in the summer of 2000. Moscow Mayor Yuri LUZHKOV said he is not yet certain if the All Russia-Fatherland bloc will continue its activities after the parliamentary election. After the State Duma elections a new political decision will be made, oriented toward election results. LUZHKOV he said he hoped the bloc will exist and decide on the presidential candidate. He pointed out that the time of nominations has not come yet. However, according to a RFE\RL Newsline, the alliance might not last through the month. LUZH-KOV said that at Fatherland's next conference it will transform itself into a political

Russian Federation

Politics

Albright Urges Anti-Crime Measures

· US Secretary of State Madeleine ALBRIGHT on Thursday in her speech at the Carnegie endowment for International Peace called on Russian President Boris YELTSIN's government to make fighting corruption its top priority. She added, "The Russian legal system remains no match for well-connected criminal and the tentacles of Russian organized crime have spread far beyond the nation's borders." She urged Russia to enact tough money laundering laws, revise its financial system to ensure accountability, and establish standards to prevent conflict of interest among government officials. ALBRIGHT said that Russian investigators should follow cases, "no matter where or to whom the evidence leads." "Our message to Russian leaders has been to get tough on corruption and to cooperate in full with investigations into it," she said. A new poll, conducted by Mneniye, shows that four out of five Muscovites believe crime is Russia's biggest problem. However, only 17 percent of more than 1,000 people polled said they were willing to pay a special tax to fund police operations. ALBRIGHT added that crime and corruption had become a "dead weight" that was holding back Russia's transition to a free and democratic society. She said that Washington will not support further multilateral assistance to Russia unless fully adequate safeguards are in place. However, "The suggestion that Russia is lost is simply wrong." ALBRIGHT criticized the US Congress which had been pushing for the 25 to 30 percent reduction of allocations for President Bill CLINTON's assistance programs to Russia and other independent states. She stressed that cooperation with Russia remains America's most important interests and accused the opposition of ignoring other contributing factors.

Today's News Highlights

Russia

Ransom Launches Investigation

Searle Opens Factory

European Republics

Latvia-US Sign Crime Accord

Smith Visits Lithuania

South Caucasus & Central Asia

Criminal Ties Wreck Batumi JV

Georgian Oil Profits $4.8M

Armenia-IMF Reach Loan Terms

Correction: Akayev May Run

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September 17, 1999

Intercon's Daily

party with a rigid hierarchical structure and break up its alliance with All Russia. After elections to the Russian State Duma, the new Fatherland party will nominate its own candidate for the 2000 presidential elections, mostly likely LUZHKOV, and create its own parliamentary faction, Moskovsky Komsomlets predicted. The newspaper cited one reason for the possible split could be former prime minister Yevgeny PRIMAKOV's active involvement in the alliance. He had been expected to play a more ceremonial role not unlike that of a British monarch and leave election campaign work to his younger, healthier colleagues. Instead, PRIMAKOV has been going to the bloc's headquarters almost every day, convening meetings on election strategy and ordering the bloc's symbol re-designed.

Russia Warns US Over Iran Bill

· The Russian Foreign Ministry issued a statement on Thursday condemning the passage of a US Congress bill on the nonproliferation of arms to Iran. The bill requires the President every six months to report to Congress any countries, foreign companies, or individuals which have helped Iran develop nuclear, chemical, or biological weapons. These entities would then be penalized with sanctions. It called the bill "openly anti-Russian." It warns the Congress that the bill might, "have the most negative impact on the US-Russian cooperation in the fields of nonproliferation and exports control." The document further read that in their essence the moves of the US Congress meant "escalation of anti-Russian sanctions under a vain pretext of Russian nuclear technologies' leak to Iran." The ministry threatened that if the bill becomes law "it will be necessary for us to reassess the entire situation concerning Russian-American cooperation on nonproliferation issues, as well as on a range of other military-political issues that stand at the core of our joint efforts to ensure a strategic balance and international stability."

Economy

Ransom Payment Kicked Off Investigation

· In order to prosecute the money laundering charges through Bank of New York accounts, investigators must prove that the money was related to criminal activity. Earlier this week, Intercon reported that the massive transfers through Benex International and Torfinex were part of a scheme to avoid Russian taxes and duties by importers. This is not a

crime in the US. Now investigators are linking the money laundering case to a kidnapping. The Federal Bureau of Investigation (FBI) began monitoring accounts at the Bank of New York on a request from Russia's Internal Affairs Ministry to trace the route of a $300,000 ransom payment made to the kidnappers of a Russian citizen, Eduard OLEVINSKY. The FBI tracked the money from OLEVINSKY account to an account at the Bank of New York in the name of BECS International, to an offshore bank, and then to the Sobin Bank in Moscow. The FBI then received notice from the Republic National Bank of New York that there was unusual wire transfer activity involving the Benex International account at the Bank of New York, controlled by Peter BERLIN, who's also controlled the BECS International account. Transfer between these two BERLIN accounts total as much as $7.5 billion since 1996. However, The Wall Street Journal, reports that this number may be inflated due to double-counting. The FBI then subpoenaed the records of BERLIN's accounts and discovered more than 87,000 transactions during an 18 month period. The extent to which dirty money was filtered through Bank of New York accounts remains unclear. This week a Russian delegation of investigators, led by deputy director of the Federal Security Service (FSB) Viktor IVANOV, are working with FBI officials on the money laundering case. IVANOV said, "US law-enforcement agencies did not show any documents that could confirm reports on the Bank of New York case. Not a single fact vouching for Russian companies' involvement in illegal transactions has been cited." A US officer said, "It's true that we didn't talks about specific evidence. But that doesn't mean we don't have a case." The FBI has presented a list of evidence for the Russians to gather in their country to assist in the investigation.

Business

Transneft Head Escorted In By Interior Troops

· Russian Interior Ministry troops Thursday used chain saws to break into the headquarters of the Transneft oil pipeline monopoly and escorted the newly appointed head of the company, Seymon VAINSHTOK, to his office. Several dozen Interior Ministry soldiers were dispatched to the company's offices after supporters of a the former president Dmitry SAVELYEV, who was ousted by First Deputy Prime Ministry Nikolai AKSYONENKO last week, attempted to block Transneft's entrance. According

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to a spokesman for the Fuel and Energy Ministry, SAVELYEV's management team had cost the government about $30 million in losses through unpaid dividends. It also has racked up 15 billion rubles ($478.8 million) in overdue taxes. SAVELYEV has filed a civil suit in a Moscow court, contesting his dismissal as a violation of Russian laws on employment and against Transneft's charter. Oil analysts believe that the Kremlin removed SAVELYEV because of his support of an opposition party Pravoye Delo. State-controlled companies with large hard-currency earnings have become the object of intense political battles as elections approach. Prime Minister Vladimir PUTIN has not publicly confirmed VAINSHTOK's appointment, adding speculations as to who is running Transneft.

Ruble = 25.4/$1.00 (NY rate)

Ruble = 25.4/$1.00 (CB rate)

Ruble = 26.34/1 euro (CB rate)

Apr May Jun Jul Aug Sep

Searle Opened Pharmaceutical Factory

· Searle Pharma LLC, the pharmaceutical unit of Monsanto Co., on Wednesday opened a factory in Russia. It is located in the town of Izvarino. The factory is a joint venture with the All-Russian Scientific Center for Molecular Diagnostics and Therapy, according to a Searle statement. It gave no details of production plans and did not mention the amount of investment.

for closer cooperation in fighting crime, which foresees the exchange of evidence, access to state documents, apprehension of suspects, confiscation of property and repatriation of criminals. US Ambassador to Latvia James HOLMES at the signing ceremony with Foreign Minister Indulis BERZINSH said the treaty, "provides the basis by which we can engage in the gathering of evidence and the exchange of information and the exchange of assistance in a way that assures the safety of the rule of law," Reuters reported.

Smith Reviews Lithuanian Security Stance

· NATO's Deputy Supreme Allied Commander Europe, General Rupert SMITH, arrived in Lithuania Thursday for a two-day visit. A spokesman at the national border ministry said SMITH will visit Lithuania to review its stance on European security and its defense doctrine, potential of its army, and preparations for joining NATO. SMITH will discuss with Lithuanian leaders its contribution to "peacemaking efforts of NATO" in Kosovo. He will visit a military training center in Rukle and observe international military exercises Amber Hope that are held under NATO's Partnership for Peace program.

South Caucasus & Central Asia

Criminal Ties Wreck Batumi JV

· US First Lady Hillary Rodham CLINTON's brothers, Tony and Hugh, have withdrawn from a $118 million business venture with Adjarian political leader Aslan ABASHIDZE to produce hazelnuts and tea. US National Security Advisor Sandy BERGER urged the brothers to drop the business deal because of its high profile involvement with ABASHIDZE, who claimed that the venture was a symbolic endorsement of support from US President Bill CLINTON. ABASHIDZE, whose economic advisor is reportedly Girgori LUTCHANSKY, has been described by former CIA director James WOOSLEY as one of the most dangerous men in the world. ABASHIDZE, a known opponent to US ally Georgian President Eduard SHEVARDNADZE, boasted about the size and scope of his business venture as more significant than the Silk Road or the oil pipeline. The National Security Council say they were not aware of the RODHAM brothers' visit to Georgia until the SHEVARDNADZE government complained that the US visitors were going to Batumi directly, without stopping in the capitol. The RODHAMs changed

European Republics

Latvia-US Sign Crime Accord

· Latvia and the US today signed a treaty allowing

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their plans, but only spent a few hours in the capitol. The majority of their eight days was spent with ABASHIDZE in numerous press and media appearances. The brothers initially rejected BERGER's request. They said there was no reason for them to believe any of their associates are involved "in any illegal activities." But they would withdraw if "rumors or allegations" of wrongdoing were proven. Their quick reversal several hours later on the joint venture has been interpreted in Georgia as confirmation of criminal wrongdoing between ABASHIDZE and LUTCHANSKY. Intercon described in breaking the story on September 2nd that LUTCHANSKY has been allegedly connected to money laundering, drug trafficking, and nuclear smuggling, (PNA) etc. and was refused a State Department visa to attend a CLINTON fund-raiser in 1995. ABASHIDZE and LUTCHANSKY first met in May 1994 according to the Georgian Prime News Agency (PNA). LUTCHANSKY, as president of Nordex Group, was earlier linked with the purchase of a Ruslan military transport plane, which on route from North Korea to Tehran touched down in Ukraine where it was discovered to be transporting Scud missile launchers instead of the declared parcel of truck parts. The RODHAM brothers, after receiving pressure from the White House, pulled out of the deal. Their lawyer James HAMILTON said the brothers were withdrawing because they did not want, "to do any harm to the first lady or the administration," The Washington Post reported. The CLINTON Administration clearly cannot risk even the mere appearance of links with Russian organized crime, given the current furor involving the Bank of New York money laundering scandal and the increasing criticisms involving its controversial policies with Russia, and the attempts to support democratic and market reform.

Georgia To Profit $4.8M From Oil Transit

· Georgian International Oil Corporation's vice president Irakli KELBAKIANI said that Georgia expects to receive approximately $4.8 million from early Caspian oil transit through Supsa. According to him, it is planned to transit over 27 million barrels of early

oil through Supsa by the end of this year. The cost of transit of one barrel of oil through Georgian territory is 18 cents. KELBAKIANI told Prime News Agency that 140 thousand tons of early oil, owned by BP-Amoco, Delta and Itochu has been transported. Earlier Caspian oil was sent through Georgia to Israel, Spain, Italy, Greece, and the US. The GIOC representative also noted that it will begin filling the 22nd tanker at the Supsa terminal today. Two more tankers are expected to be filled this month. Intercon reported Georgian officials discovered an apparent sabotage attempt at the Supsa terminal, in which large bolts were removed from the boom system. The boom has been repaired, keeping the oil supplies uninterrupted. Tankers have already transported 14,835,000 barrels of oil.

Armenia-IMF Agree On Terms For $28M Loan

· Armenian Finance Minister Levon BARKHUDARIAN said on Thursday that the Armenian government and the International Monetary Fund (IMF) have reached agreement on the terms of the release of a vital new $28 million loan installment, which will almost certainly be made available by the end of 1999, RFE/RL's Newsline reported. This agreement also paves the way for disbursement of a $25 million World Bank loan to cover Armenia's budget deficit. Originally expected in June, the IMF and World Bank loan installments were frozen due to a higher-than-projected budget deficit. The Armenian parliament in August approved the government's package of austerity measures aimed at reducing that deficit. The freezing of the funds has led to widespread wage arrears in the public sector. BARKHUDARIAN said the government will pay all back salaries and pensions by mid-October.

Correction: Two Kyrgyz presidential aides refuted reports in Der Tagesspiegel that President Askar AKAYEV would return to his scientific academic work rather than be a candidate in next year's presidential election. They said that AKAYEV does not rule out the possibility of running and claim the article is due to a misunderstanding.

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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