September 22, 1999
Earlier this month, Americans were treated to full-page newspaper ads
to advertise a product called "Binge Beer." There's no such beer; the ads
were an attention-grabbing device to warn college students of the danger
from a popular campus diversion called binge drinking.
It's not just college students who are foolish enough to destroy
themselves by binging. The Clinton Administration and the Congress
cooperate to indulge in binge banking, a frivolity that is very unhealthy
for U.S. taxpayers' pocketbooks.
With the Clinton Administration's encouragement, the International
Monetary Fund (IMF) has loaned Russia $20 billion since 1992. The IMF lent
$11.2 billion to Russia in July 1998 shortly before the ruble was devalued.
Russia is eligible for another $4.5 billion over the next year and a
half, of which the IMF disbursed $640 million in July. White House
spokesman Joe Lockhart said Clinton is not reconsidering support for IMF
assistance to Russia.
Corrupt Russian government officials and their pals have reportedly
sent $10 billion to safe havens outside of Russia. Some of the money was
laundered through U.S. banks, some deposited in Swiss bank accounts, and
some hidden in secret off-shore companies.
The IMF claims that it doesn't know whether its funds were improperly
diverted because it doesn't monitor how the money is disbursed after it is
transferred to the Russian central bank, and because IMF funds are
immediately commingled with other funds. When your business arranges a
loan with your local friendly banker, try telling him it's none of his
business what you do with the money.
In a racket misrepresented to Americans as "privatization," whole oil
and gas companies were "sold" to Russian government insiders, such as
associates of Viktor Chernomyrdin. Russian officials with inside knowledge
sold their government securities in 1998, locking in their profits just
before the ruble was devalued.
Federal authorities are now investigating possible money-laundering
shenanigans by the Bank of New York and its most profitable customer, the
Russian bank Inkombank. Investigators believe that at least $4.2 billion
and possibly as much as $10 billion moved through the Bank of New York
between early 1998 and March 1999.
It's not just government bureaucrats who recklessly squander enormous
sums. Highly-paid CEOs of multinationals do binge investing in risky
projects in unstable foreign countries.
In November 1997, British Petroleum (now BP Amoco) paid $484 million
to buy a 10 percent stake in the Russian oil company Sidanko, and promised
to invest another $3 billion more over the decade, in order to share in the
development of a huge Siberian gas field. The deal was signed at No. 10
Downing Street, and the photo-op showed British Prime Minister Tony Blair
beaming as the CEOs of BP Amoco and Sidanko shook hands.
That was then. Now, Sidanko is bankrupt, and BP Amoco is at the mercy
of Russian court proceedings described as "erratic." Sidanko's once-
smiling CEO has vanished, and BP Amoco has already written off half its
The line is being put out that this is due to "carelessness" or
"naivete." But CEOs of multinationals are not careless or naive, nor are
the bureaucrats of the IMF or the Clinton Administration.
The first problem is that they are all gambling with other people's
money. Binge gambling can be lots of fun when the taxpayers or the
shareholders have to eat your losses.
The second problem is that the rules of Western business do not apply
in Russia or most non-Western countries. They don't operate on the
sanctity of contracts, and investments are constantly subject to
confiscation, nationalization, or currency devaluation.
Russia has no tradition of the rule of law, and no Russian concern is
a "company" in the Western sense with clear bookkeeping and effective
management. Bribes are a customary way of handling all transactions from
buying an industry to getting a telephone.
Commentators are now trying to call the Russian economic collapse
"crony capitalism," but that's an unfair slur on capitalism. Russian money
is controlled by organized crime and corrupt government officials who are
grabbing the industries, the banks, and the flow of funds from the United
States and international lending agencies.
The New York Times scooped the U.S. press with its extensive reporting
on Russian money laundering through U.S. banks. The Times described how
the Russian economy today is in the throes of wholesale gangsterism, graft,
embezzlement, government insiders stealing major industries, and ruthless
manipulation of global monetary mechanisms.
The Times then published an analysis piece titled "What Makes Nations
Turn Corrupt?" Most people have known the answer to that question since
Lord Acton discovered that "power tends to corrupt and absolute power
The recycled Communists in Russia have absolute power unrestrained by
respect for law or contacts. IMF loans and Western binge investments can
only be explained by the guarantees from the Overseas Private Investment
Corporation (OPIC), the IMF, the World Bank, the Export-Import Bank, and
other international agencies for which the Uncle Sap is the chief backer.
This money racket ought to be a big issue in the 2000 elections.
Which presidential candidates will come out against fleecing the U.S.
taxpayers through binge banking and binge investments?