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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, December 10, 1999

Russian Federation


Bug Planting Begs Insider Question

· The Russian Foreign Ministry issued an official protest to the US Embassy in Moscow over Wednesday arrest of a Russian diplomat for monitoring a listening device that was planted in a seventh floor conference room. The Federal Bureau of Investigation's (FBI) counter intelligence unit picked up Stanislav GUSEV about two blocks from the State Department when signals from the listening device were sent to an electronic eavesdropping device in his car. The sophisticated device included batteries, a microphone, a recording mechanism, a storage unit, and a line-of-sight transmitter, which was installed in molding separately screwed into the wall. Investigators conclude that whoever planted the device had unescorted access to the North side conference room used by the assistant Secretary of State for Oceans and International Environmental Scientific Affairs and other officials of that bureau. Approximately 50 to 100 meetings have taken place in that room since early last Summer. US officials have said that only a professional could have planted the device, which was made to order and would have required at least two visits. This has lead investigators to the conclusion that an insider is most likely responsible. There is no record that GUSEV entered the State Department. FBI agents began monitoring GUSEV's activities this fall. He did not appear to conceal his activities. His car had plates identifying it as a Russian diplomat's; he would listen on earphones in his car; move his car around several times to avoid parking charges or reposition the receiver for better reception. While GUSEV's actions and tactics were obvious, the device was clearly advanced. One senior official insisted that GUSEV was only able to listen to conversations in real time. But other intelligence experts were skeptical, saying that

it was far more likely he was servicing a device designed to secretly record and encrypt conversations and then broadcast the compressed data in an intense, targeted burst when triggered from outside, the Los Angeles Times reported. A security agent noted, "we don't imagine the Russians would take this extremely sophisticated device and use it for the first time on such a hard target as the State Department." He added that other departments and critical buildings have been alerted and will sweep for similar devices. "The mere fact that the Russians did this is extremely sensitive. This is a very bold operation. It's about as aggressive as it gets," one US official said. Comment: The failure of the Russian intelligence service to standing down its spy operations in Washington after the recent expulsion of an American diplomat in Moscow, especially after the broadcasting a tape of the arrest and interrogation of Cheri LEBERKNIGHT Saturday on Russian television is a further indication of the bold and aggressive nature of Russian clandestine intelligence collection in the US. Interestingly, Intercon sources report that the US had planned not to publicly acknowledge this bold operation, even after the recent Moscow events. However, a State Department employee appears to have been so outraged by the audacity of the bugging of the seventh floor conference room that he leaked it to a on-line news provider, which ensured that the details of the case would be made public. This case reiterates the methodology of technical clandestine collection which can be found in the new Vasily MOTROKIN book The Sword

Today's News Highlights


Bribery Evidence Turned Over

Energy Sector Complex

European Republics

Ltih. Latvia Granted EU Talks

South Caucasus & Central Asia

Concerns Over Chechnya Grow

Corruption Allegations Intensify

Pipeline Agmt. To Be Revised

Turkmen Parliamentary Elections

Putin Arrives In Tashkent




December 10, 1999

Intercon's Daily

And The Shield. The more things change the more they remain the same.

Russia Ready To Negotiate With Chechnya?

· Top Russian officials hinted that the military may push back its ultimatum to Grozny to clear the city before a massive attack on Saturday, but stressed that the Kremlin has no intention of bowing to Western demands. Emergency Minister Sergei SHOIGU said that efforts were underway to evacuate civilians from the city. He said Russian forces would suspend their operations to allow Chechens to leave the city. In addition, buses will be sent on six routes to pick up refugees. SHOIGU said that Saturday, "is not a deadline after which corridors for the exit of Grozny residents will be closed." He said that he was prepared to hold negotiations with Chechen President Aslan MASKHADOV, but only to ensure that civilian lives will be saved. He said he was, "ready to meet anyone, even the devil," if it meant that civilians trapped in Grozny could be saved.

Meanwhile, an envoy for MASKHADOV on Thursday accused Russia of using chemical weapons in its military offensive against Chechen rebels, killing 31 people and injuring more. Saidhassan ABUMUSLUMOV said, "There are people with blisters covering their bodies who complain of abnormal drowsiness, but we do not know what kind of gas was used." He said, "a strange yellow smog," was seen over Grozny after some bombs exploded. An unnamed Russian Defense Ministry spokesman said the Chechen claims are, "disinformation intended to mislead the international community." Today, the Russian military claims that Chechen rebels have blown up canisters containing toxic chemicals in Khankala and that winds were carrying the toxic cloud northwest over Grozny.

Kremlin Bribery Evidence Turned Over

· Fatherland All-Russia has turned over evidence to the prosecutor general's office today that allegedly proves the Kremlin tried to bribe its candidates to withdraw from the Russian State Duma elections on December 19th. The documents show that the Kremlin tried to lure away at least five candidates from the Fatherland All-Russia coalition with cash payoffs and other treats. These bribes came in "all forms" including payments ranging from $100,000 to $700,000. Coalition member Oleg MOROZOV said

the Fatherland All-Russia headquarters was still awaiting documentation from five other candidates, approached by the Kremlin to switch political alliances. Former prime minister Yevgeny PRIMAKOV said that four candidates had accepted the Kremlin's bribes and left the movement, but declined to name them. President Boris YELTSIN's administration has denied the claims by Fatherland All-Russia. There was no immediate comment from the Kremlin today.

Zhrinovsky's Party Barred From Elections Again

· The Central election Commission, acting on a reversal of a previous Supreme Court ruling on Wednesday, has barred Vladimir ZHIRONOVSKY's Liberal Democratic Party of Russia (LDPR) from parliamentary elections on December 19th. The LDPR currently holds the third largest number of seats in the Russian State Duma. Two months ago the Central Election Commission struck the LDPR form the ballot, citing that leading candidates had lied on their income declarations as the reasons. The committee reinstated the party after the Supreme Court reviewed an appeal. The reversal of that decision has sent ZHIRONOVSKY on a tirade, criticizing the Central Election Commission. He told the committee, "You didn't give equal rights to LDPR, with your actions you habitually break the law and create unbearable conditions for us." He has called for the Alexander VESHNYAKOV, the Commission's chairman, to "resign for his errors."


US Food Aid Decision Delayed Until 2000

· A US Embassy spokesman said that the US Department of Agriculture (USDA) will not make a decision on granting Russia food aid until next year. He said, "The USDA for budget reasons cannot make any commitments for fiscal year 2000 right now to Russia or any countries in response to their requests for assistance under one of the programs funded by the USDA." Under aid program 416 (b), Russia was granted 1.7 million tons of wheat in the 1999 aid package. As of December 6th, 1.698 million tons had been exported. Russia has asked for 5 million tons of food aid in 2000 and has requested it should all be donated. "It has nothing to do with anything happening in Russia, it's strictly to do with the USDA in Washington determining how much funding is available to respond to requests from countries asking for free or donated commodities."

When you need to know it as it happens




December 10, 1999

Intercon's Daily

Ruble = 26.87/$1.00 (NY rate)

Ruble = 26.92/$1.00 (CB rate)

Ruble = 27.25/1 euro (CB rate)

Jun Jul Aug Sep Oct Nov Dec


Energy Situation Is "Complex"

· Chairman of the board of the United Energy System of Russia (UES) Anatoly CHUBAIS after meeting with Russian Prime Minister Vladimir PUTIN, said the situation with energy and fuel supplies in Russia is "complex." He pointed out that, "the current situation is quite tense because electricity consumption has grown by 5 percent to 6 percent from last year, but gas supplies have shrank in November to December also by 5 percent to 6 percent compared to the same period last year." During the meeting, UES and the Fuel and Energy Ministry have submitted a set of proposals to the government on how to remedy the situation. They include compliance with the agreed-upon plan of gas supplies for December, additional measures to saturate the market with fuel oil, tougher requirements for power companies and the payment of old budget debts. CHUBAIS stressed that for the first time in 30 years demand for electric energy has grown sharply, by 7 percent, but there is a shortage of energy carriers. He believes that Gazprom's fuel supplies to the energy sector in the fourth quarter of this year will fall short of its obligations by about 12 percent. This will force UES to be more demanding in dealing with its customers. Energy systems will accept only cash as payment for power consumption and will reject barter deals. He noted that cash payments in the first 10 months of 1999 increased from 16 percent to 17 percent to 43

percent, but "we need 100 percent cash payments." Fuel and Energy Minister Viktor KALYUZHNY said on Wednesday that in order to get the oil industry out of this crisis, the amount of investment should double and reach $8 billion by 2005. The emerging stabilization of the volume of oil production and processing in Russia is facing the problem of a lack of investment, he said, adding that 86 percent of investment comes from Russia's oil and gas companies.

European Republics

Lith, Latvia Invited To Start EU Accession Talks

· The European Union summit today agreed to invite six nations to begin accession talks. A spokesman for the Finnish EU president said that, "negotiations will begin with the six candidate countries," referring to Slovakia, Romania, Bulgaria, Latvia, Lithuania, and the Mediterranean island of Malta. This will double to 12 the number of countries holding formal negotiations to join the Union. Negotiations are already underway with Estonia, Slovenia, Cyprus, the Czech Republic, Hungary, and Poland. The EU leaders ignored a last minute plea from Russia not to grant accession talks to Latvia. According to a Russian Foreign Ministry statement, "We call on our European partners...to think once again about the appropriateness of this step." Russia has accused Latvia and Estonia of discriminating against hundreds of thousands of Russian-speaking people on their territory. The Latvian parliament this week passed a new law to promote the use of the Latvian language, despite protests from Russia and the EU. The EU is also set to threaten Russia with economic sanctions, if it carries out an ultimatum against the Chechen capital Grozny.

South Caucasus & Central Asia

Georgia Concerned Over Chechen Campaign

· As the Russian military campaign continues to bombard and destroy the infrastructure of Chechen cities, concerns are growing that after conquering Chechnya the military may get greedy for more territory. The Georgian Parliament on Thursday adopted a resolution describing Russia's ongoing military campaign in the North Caucasus a threat to peace and stability in Georgia. The statement affirmed Georgia's recognition of the territorial integrity of the Russian Federation and Georgia's desire for

When you need to know it as it happens



Friday Intercon's Daily December 10, 1999

diversion of funds by the Defense Ministry to the Society for the Support of the Georgian Army as "an administrative crime." The Defense Ministry accuses BITSADZE of making, "populist statements" that violate the presumption of innocence, the Caucasus Press reported. The Prosecutor's inflammatory statements and accusations without the force of indictment smacks of political posturing rather than a serious law enforcement approach. However, a report by United Nations Development Programs (UNDP) on the execution of the 1998 State Budget released on November 12, 1999, shows that serious issues have been raised. "The defense sector also secured its share of the budget. The revised budget allocated 62.1 million GEL (Georgian Exchange Lari) for defense purposes, of which 56.5 million GEL (91.0 percent) was executed. An analysis of expenditures reveals dubious priorities. The "salary and wages" line-item received 1,854,1000 GEL less than was necessary, meaning that many employees were deprived of their wages. In fact, they were deprived not only of their wages. The total funds allocated to feed those serving in the armed forces was 1,958,900 GEL less than the amount necessary to sustain normal diets. In contrast to unpaid wages and poorly fed troops, the budget allocated to the Ministry of Defense for business travel was 232,700 GEL above the original allocation. Expense on vehicles were 1,076,200 GEL above the amount allocated in the revised budget. The money over spent on travel and cars is two-thirds the amount denied to troops for food." President Eduard SHEVARDNADZE has said he will make corruption a key issue in his presidential campaign.

Tonight, masked gunmen threatened Mikhail SAAKASHVILI, majority leader of the Citizens Union Party of Georgia in the Georgian parliament, outside his home. They pushed him around and pistol whipped him. The attackers told him to stop his fight against corruption or lose his life. Speaking on national television just after recovering from the ugly incident, SAAKASHVILI said he will not end his fight against corruption. Instead, he pledge to be more vigorous. He said, "Even if you kill me the fight will go on."

Georgia Asks For Revisions To Pipeline Agmt.

· A working group of experts from Azerbaijan will

friendly relations with all neighboring states, including Russia. But it also rejected Russian demands for permission to launch operations against Chechen militants from Georgian territory and called on the Russian government to negotiate an end to the conflict. The Russian Air Force more than twice violated Georgian Airspace to aim its bombs at Chechen targets. In September, Russian helicopters bombed Omala and November Mi-8 and two Mi-24s bombed the village of Shatili. Georgia is still waiting for an apology and recognition by Russia of this second bombing, despite a joint inquiry back in November.

Georgian President Eduard SHEVARDNADZE today convened a meeting of power ministers to discuss the situation on the Georgian-Chechen border and to assess Russian allegations that the intelligence services of unnamed countries are planning to perpetrate terrorist acts in Georgia in order to destabilize that country's internal political situation. Many are concerned that such forces may make another assassination attempt on the President's life.

Baramidze Withdraws As A Candidate

· Giorgi BARAMIDZE has withdrawn from being considered to head the new Revenues Ministry. The Georgian parliament stopped discussion on his candidacy, which was proposed by Georgian President Eduard SHEVARDNADZE, because of BARAMIDZE's statements on Thursday night. He said he would like to work both as a minister and a deputy of the parliament. This dual role is prohibited by the Georgian law. BARAMIDZE said he would prefer to remain in the parliament. Chairman of parliament Zurab ZHVANIA stressed that a meeting will be held on Saturday with SHEVARDNADZE and BARAMIDZE to appoint a new candidate. The possibility still exists that he will reconsider the post if certain assurance concerning his power and authority can be provided. Nevertheless, the parliament on Thursday approved the formation of the new Revenues Ministry, despite some protests.

Corruption Allegations Intensify

· The Georgian Defense Ministry has responded to allegations made by Military Prosecutor Davit BITSADZE of misappropriated funds and unsanctioned expenditures. He had described the




December 10, 1999

Intercon's Daily

arrive in Tbilisi December 13th to work on the final agreement on building of Baku-Tbilisi-Ceyhan pipeline. President of Georgian International Oil Corporation Giorgi CHANTURIA said the Georgian side has some arguable issues to discuss, specifically some ecological problems connected to the building of the pipeline, division of responsibility in case of natural calamities, and the constitutionality and uniform of the agreement within each of the participant countries. He said Georgia particularly considers "unacceptable" an article under which Georgia would bear sole financial responsibility for ecological damage caused by a rupture of the pipeline on its territory. All sides of the deal have been sent back to review, revise, and draft new agreements. CHANTURIA said that financial documents for the building of Baku-Tbilisi-Ceyhan pipeline will be prepared during 2000 and in 2001 a tender will be announced for building the pipeline on the territories of Azerbaijan and Georgia. According to him, oil will flow no later than May 5, 2004. The pipeline will have an annual capacity of 60 million tons. CHANTURIA said that 2 percent to 3 percent of the volume of transported will remain in Georgia. The planned tariff for the transit of one barrel will be $2.80.

Meanwhile, on Wednesday, the Georgian parliament approved the candidature of David MIRTSKHULAVA, former deputy fuel and energy minister, to the post of Fuel and Energy Minister. MIRTSKHULAVA said that there is a grave situation in the Georgian energy field, but there are perspectives for finding solutions to the existing problems. He said that current around the clock supply of electricity will be possible until 2004.

OSCE Not To Monitor Turkmen Elections

· The Organization for Security and Cooperation in Europe (OSCE) announced on Thursday that it will not send even a "limited assessment" mission to monitor the Turkmen parliamentary elections on December 12th. President Saparmurat NIYAZOV requested a full monitoring mission during talks in Ashgabat in October with OSCE Chairman Knut

VOLLEBAEK. But the OSCE said that the election framework, "falls far short of what is required for democratic elections." Specifically, he noted that no provision has been made for non-government political parties to contest the poll, the executive controlled the nomination of candidates, and freedoms necessary for any level of political activity were severely restricted. A total of 102 candidates, some independents and some representing the Democratic Party of Turkmenistan, are competing for the 50 mandates in the new parliament, the RFE\RL Newsline reported.

Kazakh Leaders Assess Economy

· Kazakh President Nursultan NAZARBAYEV expressed confidence that the oil-rich state will emerge from recession. He pointed to economic growth, rising gold and foreign exchange reserves, a bumper grain harvest, and a stable national currency as signs of a fragile recovery. He said, "The economic situation in Kazakhstan remains complicated and unsteady which makes us cautiously optimistic. Much will depend on the inflow of investments." Economics Minister Zhaksybek KULEKEYEV estimated that Kazakhstan's gross domestic product will grow by 5 percent in 1999. He said that figure would have been higher but for the repercussions of last year's Russian financial crisis. He predicted that the Kazakh economy will grow steadily over the next few years. Kazakhstan's National Bank chairman Grigori MARCHENKO noted that the situation on the financial market finally stabilized in November. MARCHENKO said that the tenge has now stabilized at a rate of 137.9 to $1, compared with 142.2 in early November. Kazakhstan's gold and hard-currency reserves rose by 6.5 percent in November

Putin Meets Karimov In Tashkent

· After pushing back his trip for one day, Prime Minister Vladimir PUTIN departed for Tashkent to meet with Uzbek President Islam KARIMOV. The Russian delegation will tour the Valery Chkalov Aircraft building plant. PUTIN is scheduled to sign several documents with the Uzbek partners.

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