The Jews and The Bicycle Riders

These networks were facilitated by the strategic placement of support personnel abroad. KGB Chairman Vladimir Kryuchkov's son, as station chief in Switzerland, was implicated by a parliamentary commission in a scam to bank fortunes in hard currency for the KGB and Communist Party leaders and their families. The son of former Soviet Prime Minister Valentin Pavlov, who worked in a Luxembourg bank, was implicated in the same scandal. Even as the Russian government went through the motions of tracking down such monies, foreign intelligence chief Yevgeny Primakov blocked the parliamentary investigation from looking further, and the matter was forgotten.

By 1990 Russia stood in a very precarious position. It had vast wealth in terms of resources but no way to trade them; a mighty army but an army that was retreating from Eastern Europe without a shot being fired; a banking system with no liquidity as all funds were held in Moscow and there were no regional banks. There was a gold rouble trading at $1.20 to the U.S. dollar and a free rouble trading at $0.66. Behind all of this was a hostile West, especially the glavni vrag, the ‘main enemy’ the U.S., who would certainly prevent Russia from dumping its products on the world market and who was refusing realistic credits to Russia. In addition, the break-up of the USSR into Russia and the CIS left many of Russia’s ports in the hands of local nationalists in Lithuania, Estonia and Latvia which restricted Russian access to the markets.

There were several major crises with which the Russians had to deal. The first was food. There was little food in Russia at the best of times, exacerbated by the problems of logistics and supply. Under the Soviet system the factory or place of work in rural Russia often offered most of the social services provided by the State, including food. With the end of the Soviet system these factories or places of work had no ability to fulfill these tasks. Because their factories operated under the strictures of the command economy there were no profits, no accumulated savings or other funds upon which they could draw. They couldn’t buy raw materials; they couldn’t pay for utilities or services; and they had no market for their goods. In the giant aluminium plants there was no way to pay for the alumina (which was derived from bauxite imports from Guinea); no way to pay for electricity; and no way to pay wages and no way to get the finished aluminium to market.

Equally there was no way to price these internal transactions as there never was anything other than notional prices for transport, notional prices for raw materials and notional prices for finished products. There was no money in the system, only notional internal clearing mechanisms.

The leaders of the First, Fifth and Sixth Directorates of the KGB developed a two pronged plan. The first part of the plan included inviting in foreign capitalists to prepay the expenses of the factories to get production moving. These capitalists would pay for raw materials, pay for transport and earn the right to sell the completed goods on the world market. They would pay, in addition, a fee or ‘toll’ to the factory for producing the goods. This system of tolling would only work if there were an internal currency which could be used to start the payment system and establish prices. There was no state mechanism capable of handling this. So, the planners decided on an ambitious, if risky, system. They would make an alliance with the small and disorganised criminal groups in Russia to develop a parallel system to the government’s business. They opened up the floodgates on a massive haemorrhage of roubles onto the world markets to get hard currency and to prime the rouble pump inside Russia.

In early 1990 trainloads and truckloads of roubles left Russia, escorted by KGB police guards, for Western Europe. In Italy the Mafia, the Camorra and the ‘Nhdragheta purchased millions of dollars worth of roubles from their illicit profits. Russia became the greatest laundry for money that was ever known. Bankers in the West were offered letters of credit in roubles with a Russian guarantee that these could be brought back into Russia. Santo Pasquale Morabito, a notorious Italian drug dealer and launderer for Pablo Escobar of Colombia swapped US$4.6 billion for 70 billion roubles (or less than half the official rate). The main Sicilian outlets were Ciccio Madonia’s family in Palermo and Nitto Santapaola’s in Catania. Everyone got into the act. A Sicilian Castellamarese capo called Tommy Marsala bought half a billion roubles for the Lebanese Druse leader Walid Jumblatt, who used them to buy small arms and rockets from Russia.

The money continued to flow out of Russia. Ordinary roubles became ‘gold roubles’ when they passed the border. These were gold roubles’ because they were backed by gold held in the Russian Treasury. Between 1990 and 1992 the Russian gold reserves had mysteriously disappeared. When Gregori Yavlinsky, the reformer, went to the September 1992 G-7 meeting in Bangkok he reported that of the 2,000 tons of gold in the Russian reserve only 240 tons were left. In November even these were gone. In a little over a year over US$22 billion in gold left Russia at a heavy discount to cover the massive rouble river costs. Europe was full of stories of this group or that offering to place $140 million with one bank or the other. What did happen is that most of this money, in roubles, returned to Moscow.

When this money returned to Moscow it had to be used and directed for the national good. The KGB and its allies, under Silayev and Kryuchkov, set up a system in which loyal and trusted members of the Komsomol system and friendly businessmen could form their own banks – Russian banks. Men like Khodorkovsky, Aven, Fridman and others were chosen and set up in the money business. They used the banks to channel the returning Mafia money into long-term businesses. With few exceptions, those chosen for this were all Jews. When Western pioneers like Marc Rich, David Reuben, Gerry Lennard or Jerry Cligman agreed to work within this system by creating the ‘tolling business, they were given a kick start of roubles to help pay for the initial costs of the tolling system, They, too, were mainly Jews, albeit foreign Jews.

Between these two groups there was another layer of ‘facilitators’; people who knew the parallel system. They set up the deals. They traded the hard earned cash from aluminium into cigarettes and vodka which could be brought back into Russia and sold for cash, providing liquidity to the system. These facilitators were among the first private businessmen in Russia. They had ties to the very independent private sector who had access to the raw materials and the internal organizations which could deliver on the agreements made; the Izmailova (the late Anton Malevksy), Soltsnevo, Long Pond groups to name but a few. The facilitators included the Chernoy brothers (Mischa and Lev), Sam Kislin, and the ‘institutionals’ Gregory Luchansky, Semyon Mogilevich (Lyubarsky and Long Pond) or Vadim Rabinovich in the Ukraine.  Most of these, too, were Jews.  Without these men the Russification of Russia couldn’t have taken place. They provided the only working system in Russia. Even in the far reaches of Siberia or the outposts of the Far East one could always find someone who could provide what was needed

As this worked and metals or oil were produced and sold, these companies retained a part of the hard currency earnings the foundations of Russian capitalism were laid. As these banks and investment trusts prospered, Russia became less and less dependent on the Mafia for its business. They also became less and less dependent on Western capitalists to introduce them to commodity trading. They brought the roubles home and, in the various stages of privatization, they invested these in Russian businesses. Quite often this privatization was a sham but that wasn’t the point. The point was to bring the money home and take over the shares and the businesses.

One might well ask on what basis these ‘oligarchs’ were chosen. The main reason, in addition to their competence, is that they were mainly Jews or outsiders (Potanin’s father was a trade official and he lived outside Russia for years). As Jews they were without a political base. No Russian member of the Duma would dare stand up to protect a rich Jew. These oligarchs were dependent on their KGB bosses. A second aspect of this was that in virtually every major Soviet enterprise, at least in the metals sector, the second-in command in the enterprise was a Jew. The Russian Red General in charge of the plant was backed up by a Jewish number two who did the operational work. So, when it came to contracts with foreign businessmen, it was a Jewish plant number two talking to a foreign Jewish entrepreneur and handling the business operations with a Jewish  ‘deltsy’ and with financial matters handled by a Jewish oligarch in the making. I can recall several meetings, involving Russians, Australians, Americans and Europeans in which the only common language was Yiddish.

By now, the oligarchs and their banks and stock operations have bought out much of the foreign business interests and have largely squeezed the Mafia out of the direct control over the economy. The Mafia was allowed to turn their holdings into legitimate shareholdings in trading companies and to retain their accumulated wealth. Many have emigrated to Israel under the “right of return”. To a large degree, what used to be the Mafia has become legitimised. Russian criminals have been de-politicised and have returned to a life of crime; but backed with huge wealth.

The Chekists have decided that the time has come to make the final step; remove the Jews from their positions of power and to return politics to the surviving Chekists. It should be no surprise that the current battle by the government against Yukos is being driven by the ex-KGB team around ex-KGB officer Putin. They know, as they have known all along, that one day it would be the Jews’ turn on the removal list.

My grandfather, from Minsk, used to say to me “When the Organs take an interest in you and your business it is time to prepare for emigration”. I suspect Abramovich heard the same advice. Whether Khodorkovsky will follow is not yet clear.