Publication: Monitor Volume: 5 Issue: 169

Various Russia media have been making the case that the US$4.2-10 billion reportedly sent from Russia to the Bank of New York over the last year or so was a case not of moneylaundering, but of capital flight–meaning that the bulk of the billions represented money that Russian businesses were trying to hide from the taxman, not proceeds from criminal activities. Other observers, however, are increasingly turning to another explanation for the source of the money–the profits Russian banks and government officials allegedly made from GKOs, Russia’s now-defunct short-term treasury bills, using insider information just prior to the collapse of the GKO market in August 1998. Indeed, some observers claim the bulk of a US$4.8 billion dollar loan installment from the International Monetary Fund (IMF) in July 1998 went to holders of GKOs, who converted the soon-to-be worthless ruble-denominated paper into the freshly received IMF dollars at highly-favorable exchange rates, reaping huge profits (Novaya gazeta, September 9).

Yuri Skuratov, Russia’s suspended prosecutor general, is now claiming that nearly US$3.9 billion of the IMF’s US$4.8 billion tranche in the summer of 1998 never reached Russia, but was sold by Russia’s Central Bank directly to eighteen of Russia’s powerful commercial banks, using their correspondent accounts in the Bank of New York. In an interview published today, Skuratov claimed that US$4.4 billion of the IMF installment was sold this way to the commercial banks (he named only SBS-Agro and Oneksimbank specifically) during the period between July 23 and August 17, 1998–the day the GKO market collapsed and the ruble began its nosedive in value. According to Skuratov, only US$471 million went to support the ruble–the putative purpose of the IMF loan (Moscow Times, September 15).

Yesterday, USA Today, citing unnamed U.S., British and Russian law enforcement officials, reported that investigators looking into the Bank of New York scandal “obtained more than 3,500 pages of records from the Bank of New York showing that ‘several billions’ of dollars were transferred out of Russia just days after the IMF monies were allocated and before the ruble crash took place” (USA Today, September 13).

The Bank of New York has not been accused of wrongdoing and is cooperating with the investigators looking into the alleged moneylaundering. It is worth noting, however, that the bank may have received questionable deposits from Russia earlier than this year and last. In July 1997, for example, Russia’s Prosecutor General’s Office launched an investigation into the alleged embezzlement of several hundred million dollars in government funds earmarked for a Russian aircraft-manufacturer to provide MiG jet fighters to India. While a contract with India was never signed, the money was nonetheless allocated. Kommersant reported at the time that US$55 million of this, along with other federal funds, somehow wound up in the correspondent accounts which MFK, a Russian commercial bank, had opened in the Bank of New York (Moscow Times, July 12, 1997). No one was prosecuted for the alleged embezzlement, nor did it ever become clear what happened to the funds.

As for who specifically might have profited from the GKO scheme: Earlier this month, Skuratov claimed that he had launched an investigation of 780 Russian government officials for insider GKO trading during the three and a half weeks prior to the August 1998 meltdown. Skuratov named Anatoly Chubais, Russia’s privatization architect, as being among them. Two days ago, USA Today, citing unnamed U.S., British and Russian investigators, reported that Chubais and former Foreign Minister Andrei Kozyrev were among the officials who had profited this way and subsequently deposited the proceeds into foreign bank accounts. Both men denied the charge. A spokesman for Chubais told USA Today that Chubais had never invested in GKOs while in government, and had lost money on GKO investments made during the period he was out of government in 1996.

In 1997, a Russian newspaper claimed that a fund headed by Chubais devoted to developing “civil society” had received an interest-free loan from SBS-Agro worth US$3 million the previous year, which was then used to purchase GKOs (Izvestia, July 1, 1997).