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

Wednesday, October 6, 1999

Russian Federation

Politics

Chechnya Declares Martial Law: Is it Legal?

· Russia troops are fortifying their position on the northern bank of the Terek River, including a stronghold near the village of Chervlyonnaya, located only 15 miles from Grozny. It is believed that Russian troops will stop advancing across the river's natural border. Prime Minister Vladimir PUTIN announced the seizure of a significant part of Chechnya, stating that Russian forces have captured around 30 settlements. Troops encountered very little resistance in taking control of the northern third of Chechnya. The region south of the river offers wooded and hilly terrain, which would gives Chechen fighters an advantage of launching effective guerrilla-style raids. Therefore it is believed that troops will halt their advance and dig trenches in preparation for war. In response to the Russian incursions, Chechen President Aslan MASKHADOV declared martial law, effective today. His spokesman declined to elaborate on details of an extended curfew being imposed and other conditions of martial law. The streets of Grozny were deserted today, except for men in military uniforms. The President's wife, Kusami MASKHADOVA, is staying in Tbilisi for safe-keeping from the impending military action. Russian presidential envoy to the Constitutional Court Mikhail MITYUKOV today said the introduction of martial law in Chechnya is unlawful. "Chechen Republic is a subject of the Russian federal, hence, Russian laws apply to it," pointing out that only the president can introduce martial law. He also regards as unlawful MASKHADOV's intention to invite a contingent of international forces to the Chechen territory. A Moscow poll released Tuesday showed a majority of 1,020 Muscovites who participated in the survey support the continuation of airstrikes against Chechen militants. Russia's Itar-Tass news service says of

those polled 59.7 percent were for further bombings, while 20 percent were against. However, asked if Russia should hold talks with Chechen leaders, 41.2 percent of those polled were against, while a much closer 39.7 percent supported negotiations.

The total of refugees fleeing Chechnya has exceeded 120,000 people as of early today. Most of the displaced person have flooded into neighboring Ingushetia. Ruslan AUSHEV, president of Ingushetia, said, "We are in desperate need. Most of all we need food, especially baby food, as well as tents and temporary housing." He said his region only had enough food to provide for a mere 5,000 refugees. Russian authorities have considered a plan to resettle refugees in the northern Russian controlled zone of Chechnya. US-based Human Rights Watch warned PUTIN in a letter of "inadequate" conditions for refugees. The group added that the plan to resettle refugees is a, "blatant violation by Russia of its international obligations to protect the displaced against forcible return to any place where their life or safety would be at risk," the Financial Times reported. Moscow is acting under instructions from above not to re-register any ethnic Chechens as a part of the propiska program. Deputy director of Human Rights Watch Rachel DENBER said that this step effectively criminalizes the Chechens and leaves them open to persecution and ultimately expulsion from Moscow.

Lesin Calls For Changes On Press Law

· Russian Mass Media Minister Mikhail LESIN said that the information policy

Today's News Highlights

Russia

Militants Botch Bombing

Three Charged In BONY Case

European Republics

Lith. Amend Laws For Oil Deal

Ukraine-Uzbek To Sign Agrmts.

South Caucasus & Central Asia

Georgia Raises Issues To CIS

US-Georgia Plan Medcare-2000

Niyazov Makes Oil Pitch

Tajik To Respond To Bombing

Politics-Economics-Business

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Wednesday

October 6, 1999

Intercon's Daily

for mass media should be changed to take in account how to enforce it. He met with Federation Council Chairman Yegor STROYEV to discuss this problem. LESIN said that he supports regional leaders who believe that "there is much aggression in the activities of the mass media now." He declared that, "What is going on now is the result of ill-considered policy towards the mass media." LESIN admitted that it is easier to admit there is an error with the policy than it is to correct the situation. Part of the problem he pointed out is that the law on mass media, "does not allow us today to react promptly enough to some things that can be interpreted as violations." He said, "Now that we have the data about the number and the condition of the mass media agencies we can tackle this problem comprehensively and suggest a new state policy and tactics towards the mass media," which would be considered by the Duma.

Militants Botch Bombing Attempt

· Four militants have been blamed for accidentally exploding a house, where they rented an apartment in the settlement of Goryachevodsk in the Stavropol region on October 3rd. The rebels arrived in the area with 130 grams of explosives and six electric detonators. However, they carelessly handled the explosive devices, which resulted in the blast. The explosion killed one militant and the rest of the rebels supposedly escaped to Chechnya in a car. The Russian Interior Ministry in Dagestan said on Tuesday, one of the militants was detained in the Nogaisk region of Dagestan near the administrative border with Chechnya; the other two are still at large and are being searched for by the police.

Economy

Ruble = 25.49/$1.00 (NY rate)

Ruble = 25.78/$1.00 (CB rate)

Ruble = 27.61/1 euro (CB rate)

Three Indicted In BONY Money Laundering Case

· A federal grand jury in Manhattan has unsealed "initial criminal charges," filed on September 16th, stemming from the investigation of money laundering through the Bank of New York. Former bank employee Lucy EDWARDS, her husband Peter BERLIN who controlled the Benex International and BECS International accounts, and Aleksey VOLKOV, president of Torfinex, along with their three companies, have been charged with conspiracy to transmit

$7 billion from 1996 to August 1999, without an authorized state license. BERLIN and VOLKOV and the three companies were also charged with two additional counts, illegal money transmitting and receiving deposits illegal, The Wall Street Journal reported. These are the first charges filed in the case, but they still fall short of charging the defendants with money laundering offenses. This shows how hard it has been for investigators to prove that the billions of dollars funneled through at least nine accounts originated from illegal activity. If convicted of the charges EDWARDS could face a five-year sentence and a fine of $250,000, while BERLIN and VOLKOV could face up to 15 years in prison and a $750,000 fines. The indictment is also seeking the forfeiture of $6.2 million in frozen accounts. EDWARDS and BERLIN have claimed they have done nothing wrong. Their lawyer, T. Barry KINGHAM, said, "We will respond at the appropriate time in the appropriate forum." VOLKOV has also denied engaging in any wrongdoing. The Federal Bureau of Investigation (FBI) began monitoring the accounts, after tracing a ransom payment through one account. Russian politicians and businessmen believe that the accounts were used by importers to avoid duties and taxes. Prosecutors have signaled that they may add more serious counts to the indictment and may charge others as the investigation continues to unfold. Releasing the information to the public could produce many positive results. The charges could pressure EDWARDS to implicate other higher-ups, allow investigators to monitor the behavior of others involved in the scandal, or show the public that the case is moving forward. FBI assistant director Lewis SCHILIRO said that US authorities approved the unsealing of the charges to share publicly the early results of the investigation with foreign law-enforcement authorities.

Business

Aeroflot Denies Access To Financial Books

· State-owned Russian airline Aeroflot has refused to share it financial books with Swiss investigators and PricewaterhouseCoopers. Investigators had been requesting the information to prove Aeroflot's commercial relations with Forus, a small Swiss finance company linked with business tycoon Boris BEREZOVSKY. Forus is accused of siphoning off $200 million of funds from Aeroflot. Forus, which has had its accounts frozen due to the on-going

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investigation of Russian money laundering schemes, insist that its commercial relationship with Aeroflot was legitimate. It added that the investigation will soon force it out of business. Forus' managing director Rene KUPPERS approached the head of Aeroflot, Russian President Boris YELTSIN's son-in-law Valery OKULOV, for his assistance in confirming that its credit transactions were, "absolutely regular and in full compliance with legal requirements." OKULOV has refused to cooperate. KUPPERS said this was "very curious," adding "What has Aeroflot got to hide?," the Financial Times reported. Forus raises money for Russian companies, including $180 million for Aeroflot primarily in short-term facilities. Alexander ZURABOV, the first deputy director general of finance at Aeroflot, said that auditors should be able to prove or disprove the wrongdoing, by examining Forus' own books.

Gazprom Holds Y2K Conference

· Russian gas monopoly Gazprom hosted a conference last week with gas transport and distribution companies from Commonwealth of Independent States and the Baltic countries on resolving the Y2K problem. Gazprom clients from Russia, Ukraine, Belarus, Lithuania, Latvia, Estonia, and Moldova attended the meeting. Gazprom, the world's biggest natural-gas producer, is the biggest supplier to Western Europe. It is planning to upgrade 5,000 of its 28,000 computers threatened by the millennium bug by October. Approximately 4,000 more computers will remain problematic. Denis RODIONOV, an economist at Moscow brokerage Brunswick Warburg, said that as many as 30 percent of Russia's power stations are gas-fired and thus dependent on Gazprom working efficiently. Gazprom is 96 percent prepared for the new millennium. It has called for transport and distribution units to form special duty groups for the period from December 31, 1999 to January 4, 2000 to monitor its systems.

Christian Democrats. The left-wing opposition minority voted against what they called "treachery against Lithuania's interests." They added that the right-wingers had taken "political decisions which are dangerous for the country and economically groundless" with the sole purpose of "ending energy dependability on Russia [LUKoil] as soon as possible and fly into the West's embrace." They also point out that gross violations are being committed because there was no public tender and William was chosen behind closed doors. Williams will be permitted to buy 51 percent of the stock of the Mazeikiu Nafta refinery, while the government will keep only 18 percent. Williams has required the Lithuanian government to take on the guarantees of receipt of $650 million, "to cover the circulating assets of Mazeikiu Nafta."

Ukraine-Uzbek To Sign Economic Treaty

· Uzbekistan and Ukraine will sign a long range economic cooperation treaty for the period of 1999-2006, as well other bilateral documents during the official visit of Uzbek President Islam KARIMOV to Kiev on October 7th to 8th. The Ukrainian Foreign Ministry said the visit, "is going to become an important step in the direction of the consolidation of bilateral relations between the two states, which are developing on the principles of traditional friendship and mutual trust." The Uzbek president will hold meetings and talks with Ukrainian President Leonid KUCHMA, Prime Minister Valeri PUSTOVOITENKO and Chairman of Parliament Alexander TKACHENKO. The Uzbek and Ukrainian officials are expected to discuss the problem of railway tariffs for the transportation of cargoes to Ilyichevsk and the deliveries of Uzbek cotton to textile mills, primarily in Kherson and Ternopol. The two presidents are expected to discuss the development of cooperation in the production of the new An-70 military-transport plane. Uzbekistan produces and supplies wings and some units for the assembly of planes at the Antonov aircraft-building works in Kiev. KARIMOV will visit the Antonov aircraft design center. Ukrainian-Uzbek trade totaled $170 million in 1998.

South Caucasus & Central Asia

Georgia Reviews CIS Parliamentary Assembly

· At the Commonwealth of Independent States (CIS) Parliamentary Assembly on October 15th,

European Republics

Lith. Parliament Amends Laws For Oil Deal

· Lithuania's parliament adopted amendments to six laws on Tuesday, allowing the US company Williams International to control the oil industry, the most important branch of the Baltic state's economy. All amendments were passed with the help of votes from right-wing parliamentarians: Conservatives and

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Georgia will propose discussion on a resolution which will determine Georgia's position on the latest events taking place in Caucasus region in regard to the Russian-Georgian relationship. Georgian Representative to the CIS Parliamentary Assembly PAATA SURGULADZE told Prime News Agency that the discussion will focus on the political situation in the Caucasus, the change of border guard regime at the Abkhazian portion of the state border by Russian, and the participation of Russian State Duma deputies as observers in the October 3rd presidential elections held in Abkhazia. Vladislav ARDZINBA, the only candidate, was re-elected president. The elections have been declared illegitimate and void by the UN, US, Russia, and Ukraine. SURGULADZE said that if the CIS Parliamentary Assembly does not support the position of the Georgian delegation, it will consider leaving the organization. According to him, many documents approved by the Assembly have not been implement or realized and remain only on paper. Earlier this year Georgia, Ukraine, and Uzbekistan withdrew from the CIS Defense pact.

Georgia-US Firm Up Medical Exercises Plans

· About 9 representatives of the 30th military-medial brigade of the US and heads of the Georgian Defense Ministry medical department participated in a conference in Tbilisi on Tuesday. The two sides agreed that up to 60 US doctors will participate in a joint Georgian-American military-medical exercise Medcare-2000, which will be held in Tskaltubo next June. Head of NATO Partnership for Peace Program under Georgian Armed Forces General Staff Irakly BATKUASHVILI told Prime News Agency that 350 military may be accommodated in a reserve hospital of the Georgian Defense Ministry in Tskaltubo.

Niyazov Makes Pitch For Turkmen Oil

· Turkmen President Saparmurat NIYAZOV at a meeting with the Turkish Energy Minister, Cumhur ERSUMER, and the director of the Botas Company, Gokhan YARDIN, called on Turkey to buy Turkmenistan gas rather than Russian. He said, "On the Turkish border, the price of 1,000 cubic meters of

Turkmen gas to be transported through a trans-Caspian pipeline will be $70, while the same volume of Russian gas from Blue Stream will cost $114 . This is direct advantage for the Turkish market." He stressed that Turkey should make a decision as to which pipeline route it favors: the trans-Caspian pipeline or the Blue Stream. NIYAZOV said, "Russia is trying to make Turkmenistan kneel down, by offering to buy Turkmen gas at a low price and then to transport it on its own to Turkey and Europe. That is really profitable for it [Russia], but not for the Turkmen state which wants to have its own access to Turkey and Europe. And you—the brotherly Turkish people—should help us at this crucial moment." In 2010, Turkey will need more than 60 billion cubic meters of gas and by 2020 as many as 80 billion. ERSUMER noted that the trans-Caspian pipeline has no opponents since it is cheaper and the Russian project has difficulties building the underwater part of the pipeline. The trans-Caspian pipeline, across Turkmenistan, Azerbaijan, Georgia, and Turkey, is slated to be completed in 2002.

Tajik To Respond To Weekend Bombing

· A senior official from the Tajik government said, "the Tajik leaders will respond in an appropriate way to the bombing of the republic's territory," which began over the weekend. Authorities do not have accurate information about casualties and destruction and can only speak about unidentified planes until investigator submit a final report. The first bombs were dropped on the Dzhirgatal and Tajikabad Regions bordering on Kyrgyzstan, as well as near the village of Khait, Garm Region, on Saturday and Sunday. Between 20 and 24 bombs were dropped on Monday, mostly on the Dzhirgatal Region. These incidents may be connected to the large-scale operation, staged in the southern part of Kyrgyzstan.

The Daily Report on Russia and FSU

will not be published on October 11th

in observance of Columbus Day

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

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