Yeltsin Left With Few Allies

Analysis By Sergei Blagov

In Moscow, where conspiracy theories abound, the successful "little war" in Dagestan and a blast in the early morning hours today at a shopping center near the Kremlin -- in which 40 people were injured -- have only made skepticism grow.

In front of the corruption scandals, Russian officials have denounced "mafia" and "organized crime" as the main culprit for the siphoning of billions of dollars out of the country.

But this time, it is not only prominent Kremlin's officials and business friends or who appear involved in the financial schemes, but President Yeltsin himself, while millions of Russian state workers have to wait months to have their salaries paid.

However, given Russians' virtually zero-level of confidence in their president, it is difficult to imagine how Yeltsin could possibly be further discredited.

On Aug. 25 the Italian newspaper Corriere della Sera reported that Bahgjet Pacolli, head of the Swiss-based Mabetex construction firm, paid off credit card bills to the President and his daughters Tatyana Dyachenko and Yelena Okulova.

The report said Mabetex head Pacolli transferred over one million dollars to the Yeltsins in 1994, in exchange for lucrative contracts to renovate government offices in Moscow.

The Kremlin came up with a series of denials. "The president of the Russian Federation, his wife and their children have never opened accounts in foreign banks," an official statement said, but Pacolli told Russian television that he has never paid off any credit cards for Russian officials.

Il Corriere della Sera also said that Pacolli transferred the money through accounts belonging to Kremlin property manager Pavel Borodin, who, in turn, is under investigation by Swiss and Russian officials probing whether he took bribes from Mabetex in return for renovation contracts.

Last month, Geneva city prosecutor Bernard Bertossa froze bank accounts he said belonged to Borodin under suspicion of money laundering. "This campaign has been unleashed in order to discredit me and the state leaders," Borodin retorted.

An upset Chuglazov -- even telephone lines in his Moscow office were suddenly cut off -- told Russian television on Aug. 30 that "90 percent of facts" on Mabetex affair disclosed by Western media were true and that investigators "had the documents" to prove it.

Furthermore, the biggest money laundering scandal broke earlier this month when The New York Times ran a story claiming that Russian organized crime groups had spirited as much as $10 billion through accounts in the Bank of New York.

The bank has suspended two employees who handled the accounts, Natasha Gurfinkel Kagalovsky of New York and Lucy Edwards of London, both of whom are married to Russian businessmen.

Gurfinkel Kagalovsky is the wife of Konstantin Kagalovsky, Russia's representative to the International Monetary Fund (IMF) from 1992 until 1995 and current vice president of the giant oil company Yukos.

In an interview on Aug. 27, Kagalovsky -- echoing Borodin -- said that he believed the allegations were part of an "anti-Russian campaign."

USA Today reported that Russian organized crime figures laundered at least $15 billion through four accounts at the Bank of New York and one at New York-based Republic National Bank.

Citing unidentified sources in the British National Criminal Intelligence Service and the Russian Prosecutor General's Office, the paper named the five: Yeltsin's daughter Tatyana Dyachenko, former deputy prime ministers Anatoly Chubais and Oleg Soskovets, former Finance Minister Alexander Livshits and Interros president Vladimir Potanin.

According to USA Today, law-enforcement officials said the laundering might have included funds lent to Russia by the IMF. According to the The Wall Street Journal, $200 million from IMF loans may have been laundered through the Bank of New York.

Russian deputy prime minister Viktor Khristenko denied that the Russian Central Bank or the Finance ministry had been implicated in money laundering scandal.

Livshits called the allegations "a blatant lie." Likewise, former deputy prime minister Chubais said in a media statement that "never have I had bank accounts abroad."

Russia's acting prosecutor general Vladimir Ustinov also hinted at possible criminal investigation. He called for the Federal Security Service to "check the facts cited in the Russian and foreign press reports on the scandal around the Bank of New York."

The Russian Tax Police Service also expressed its readiness to cooperate with the U.S. law enforcement agencies in the investigation, director Vyacheslav Soltaganov said.

Swiss media also reported last week that prosecutors froze the accounts business tycoon Boris Berezovsky -- a Yeltsin's daughter ally -- along with accounts belonging to two Swiss-based companies linked to him, suspected of having been used to siphon off foreign revenues of the state-owned Aeroflot airline.

Aeroflot is headed by Yeltsin's son-in-law Valery Okulov. The Lausanne premises of those two firms, Andava SA and Forus Service SA, were searched this spring by Swiss prosecutors, who seized piles of documents.

A warrant for Berezovsky's arrest had been issued earlier this year, but it was quietly cancelled when the political patron of the investigations, prime minister Yevgeny Primakov, was fired by Yeltsin in May.

On Aug. 27, Berezovsky blamed Moscow Mayor Yury Luzhkov of being behind the graft allegations, calling him a mastermind of "this provocation." Luzhkov -- who just forged an anti-Yeltsin electoral alliance with Primakov -- dismissed the accusations.

Russian Press and Information Minister Mikhail Lesin -- one of the few remaining Yeltsin's loyalists -- has described revelations by the international media as a reflection of on-going political battle in Moscow.

However, these days few people would subscribe to this point of view.

It is an ominous sign for Yeltsin that anti-Kremlin allegations by the international media effectively boost the Primakov-Luzhkov electoral alliance -- despite the fact that less than a year ago Primakov was widely described in the West as an "anti-Western conservative."