Russia Goes After 'Party Gold'
Money Communist officials allegedly shifted out of the country is called crucial to reform
THE American investigative firm Kroll Associates has had some tough jobs before.
The Philippine government sent them to uncover the hundreds of millions of dollars that former dictator Ferdinand Marcos had stashed around the globe. The Kuwaitis asked them to locate the secret bank accounts of Iraqi strongman Saddam Hussein so they could be seized for war reparations.
Now the team of veteran sleuths has an employer that even they admit is unusual - the Kremlin - and a task that may be even more daunting.
The Russian government has hired the firm to trace what is estimated to be $14 billion in hard-currency that has been illegally moved out of the country to bank accounts from Switzerland to New York.
And somewhere in this mountain of cash is what the popular press calls "party gold." This is shorthand for the now fabled billions that the masters of the once-powerful Communist Party of the Soviet Union are rumored to have moved overseas, some of it within weeks before the failed hard-line Communist coup last August.
The contract with Kroll is only part of a new anticorruption drive recently unveiled by the Russian government of Boris Yeltsin.
"For the first three months we have been busy with problems of economic policy and we had no opportunity to seriously tackle the problem of corruption in the government," Russian Finance Minister Yegor Gaidar explained in a television interview late Sunday evening. "Now we are turning our attention to this," he vowed.
Last Friday government officials revealed several cases they had uncovered of officials of state-run companies carrying out dubious privatization schemes in which they essentially sold state property to themselves at bargain basement prices. This practice is known here as "nomenklatura privatization," referring to widespread instances of such deals by the Communist Party elite.
The revelations by Valery Makharadze, the government's chief inspector, mainly concerned a scheme to form a joint stock company, KOLO, out of part of the assets of six defense and space complex firms. A number of prominent former Communist officials, including Oleg Belyakov, who headed the party Central Committee department dealing with defense industry, and Leonid Kravchenko, former head of state television and radio, were involved. Several government officials, including the deputy head of the committe e in charge of privatizing state property, were dismissed.
"Last year saw large-scale privatization by the nomenklatura, privatization by officials for their own personal benefit," Mr. Gaidar told Russian television. He suggested that this was part of powerful resistance to the market-oriented reforms pursued under his leadership.
Tackling the problem of capital flight is perhaps the most serious aspect of the government's new anticorruption campaign. State-run enterprises and individuals openly defy government regulations requiring that they declare their overseas deposits, so that they can be taxed and returned to Russia to help form hard currency funds. Those funds are crucial to the reformers' efforts to stabilize the value of the ruble and repay Russia's foreign debt.
Officially, the money which flowed out illegally in 1991 alone amounted to $6 billion to $8 billion, but unofficial estimates put it at $14 billion. "The effect of this capital flight is devastating to our economy and can no longer be tolerated," declared the Russian government statement announcing the decision to retain Kroll Associates.
According to Kroll Vice Chairman Joseph Rosetti, it was Gaidar himself who personally contacted Jules Kroll, the firm's founder. "He conveyed an incredible commitment to the cause," Mr. Rosetti says of Gaidar. "He's a dedicated servant. They're serious about going at this with dispatch so they can not only capture what has gone out but deter future activities."
Kroll's plan is to investigate outside of Russia, "to track as much of the financial transactions as we can get to," Rosetti says. Russian government agencies have been instructed to cooperate, and Kroll investigators have already been handed files covering key areas of investigation. The scope includes foreign firms that may have aided Russians and former Soviet organizations in getting their money out, the Kroll official adds. Among them are firms in the oil and food industries, he says, declining to b e more specific than that.
The scale of the evasion however is vast. State-run enterprises now regularly ask that their payments be made into foreign bank accounts, particularly after hard currency accounts kept in the Soviet bank for foreign economic relations, Vneshekonombank, were frozen. That bank used to have a monopoly on currency dealings and is designated as the bank to collect funds to repay former Soviet debt.
The capital flight is not restricted to factories, to wheeler-dealers in the black market economy, or even to the Communist Party apparatus. It extends to government organizations as unlikely as the Moscow city government, headed by liberal reformer Gavril Popov. Mr. Popov's administration, for example, took control of the former office building of COMECON, the economic pact of the Soviet Union and Eastern Europe, which occupied a relatively modern complex across from the "White House," the seat of the R ussian parliament. It leases the offices now to Western firms and organizations and, according to one of them, is demanding that they pay their dollar rents into a branch of the British Barclay's Bank in Cyprus.
"It's going to be interesting to see what they do with the results of our work," Rosetti says with a slight smile.