NY Bank scandal tip of iceberg
Looting Russia fuels Wall Street boom
By Fred
Goldstein
Federal authorities are currently investigating the Bank of
New York in one of the largest money-laundering cases in U.S.
history. The particular case under investigation involves up to
$10 billion in funds secretly moved out of Russia by corporate
embezzlers, political insiders and gangsters over the last 18
months.
This is a remarkable case study of how Wall Street and U.S.
capitalism as a whole have enormously benefited from the
looting of the former Soviet Union. Yet this case is only the
tip of the iceberg.
The initial focus of the investigation is a company called
Benex. It had an account with the Bank of New York, which
laundered $4.2 billion in 10,000 transactions between October
1998 and March 1999. The account was left open, ostensibly to
"aid the investigation," and by now it is thought that as much
as $10 billion has flowed through it.
Banks and oil money
Benex is headed by one Peter Berlin, who runs the company
partly from his home in Queens by telephone and
computer--hardly the type of establishment one expects to carry
out 10,000 transactions worth billions of dollars.
Berlin is married to Lyudmila (Lucy) Edwards, a Russian
émigré who, until she was fired a few weeks ago,
was a Bank of New York vice president in charge of the East
European division stationed in London. Edwards handled the
Russian accounts.
Edwards reported to Natasha Garfinkle Kargalovsky, who was a
senior vice president in charge of Eastern European affairs at
the New York office. Kargalovsky is a Russian
émigré with a degree from Princeton who married
one of the capitalist "reformers," Konstantin Kargalovsky. He
was vice chair of Menatep bank, now in a state of bankruptcy,
and also vice chair of Yukos, Russia's second-largest oil
company. He was also Russia's representative to the
International Monetary Fund.
Konstantin Kargalovsky is part of the empire of one of
Russia's powerful capitalist "oligarchs," Mikhail Khodorkovsky.
According to the Sept. 5 New York Times, he runs the Yukos oil
company and the Menatep bank, among many other capitalist
enterprises, through the holding company Rosprom.
Khodorkovsky is in the inner circles of the biggest bankers
and government officials in Russia. He bought Yukos, worth
billions, for $310 million. This purchase was typical of the
big sell-off that has taken place of assets built up under
socialist construction in the Soviet Union. His Menatep bank is
under suspicion in the money-laundering investigation of the
Bank of New York, which helped Menatep get listed for trading
on U.S. stock markets.
The Bank of New York is the 17th largest bank in the U.S.,
with assets of $67 billion. It is a prestigious institution in
the hierarchy of U.S. finance capital and one of the oldest in
the country. According to the New York Times of Aug. 20, "the
bank also actively courts foreign companies to list their stock
for trading in the United States and has made a big effort in
the last few years to persuade Russian companies to do business
with them."
As part of the "big effort," the bank let the new capitalist
oligarchy in Russia know that they could launder money through
its accounts. Inkombank, one of the biggest banks in Russia,
switched its account in 1992 from Republic National Bank of New
York to Bank of New York when "Ms. Kagalovsky assured
Inkombank's representatives that `Bank of New York would be
much more understanding about how to manage accounts than
Republic.'" (New York Times, Aug. 20.)
It was Republic National Bank that blew the whistle on the
Bank of New York in a letter to the FBI in August 1998.
U.S. banks glad
to launder dirty money
This open offer of money laundering was part of the struggle
by the financial sharks on Wall Street and the rest of the
imperialist world to sink their hooks into Russia, as well as
the other republics, after the collapse of the USSR. The aim
was to siphon off the vast wealth accumulated under socialist
construction, as well as the enormous surplus value produced on
a daily basis by the Russian working class, and recycle it into
the arteries of the imperialist financial system.
The Bank of New York, which of course denies all wrongdoing,
is a perfect example. Some of the money circulating through the
bank and available for investment, interest collection and
stock purchases was looted from the oil workers of Russia.
"Residents of Tomsk, a Siberian city that is home to
Tomskneft, one of Yukos' biggest oil subsidiaries," wrote the
New York Times on Sept. 5, "say that Tomskneft, the city's
biggest employer, has purposely mismanaged, resulting in tens
of thousands of layoffs of oil workers."
The workers say that the company told them there was no
money. But in fact, Khodorkovsky forces the subsidiaries to
sell oil to Yukos at low prices. Yukos then sells the oil on
the world market and siphons off the profits to offshore
facilities or directly to big banks.
The Bank of New York scandal is only the tip of the
iceberg.
According to the same Times article, "The amount of money
siphoned out of Russia illegally in recent years is difficult
to quantify because the government does not track it closely
and because much legitimate cash is sent abroad in search of
stable banks. Russia's Interior Ministry estimates that
anywhere from $50 billion to $250 billion was transferred out
of the country illegally from 1994 to 1998." Other bourgeois
institutions put the amount at $135 billion.
Legal or illegal, it's all stolen from workers
Thus, in addition to up to a quarter of a trillion dollars
(!) in illegal funds sent abroad, there are also untold
billions in the so-called "legitimate" cash that the Russian
bourgeoisie sends out of the country. They do this because the
financial system of Russia is so unstable and because the most
profitable investments in stocks and bonds are in the
imperialist countries.
To this must be added the billions in interest payments on
the Russian debt that flow into Wall Street, London, Bonn,
Paris and Tokyo.
These enormous quantities of cash, whether they go directly
to the big banks or work their way through offshore facilities
first, eventually find their way into the stock market or the
bond market, either on a short-term or long-term basis.
This wealth--plundered by the Russian bourgeoisie and placed
with the imperialist banks and financiers who gather up and
centralize all the wealth of the globe in their hands for the
purposes of exploitation and speculation--must be considered a
significant factor in the capitalist boom and the steady rise
in the U.S. stock markets.
This is what the Cold War against the Soviet Union was all
about.
This theft is supplementary to the wealth gained from
intensified plunder of the oppressed countries under the regime
of neoliberalism and IMF-imposed structural adjustment. And it
is also on top of the huge profits squeezed from workers in the
imperialist countries themselves, whose wages and benefits have
been sharply eroded in this period of restructuring and union
busting.
Real value, not just paper assets
The cash flowing out of Russia into the accounts of Wall
Street firms represents real value, unlike so much of the paper
assets these companies show on the books in the form of loans
for stock market speculation.
It represents profits taken out of the hides of the Russian
workers, as well as the sell-off of values--plants, facilities
and inventories--created during socialist construction and not
being replaced as they are used up.
Stanley Menshikov, a Marxist economist during the era of the
USSR, wrote in the Monthly Review magazine of July/August 1999
that "Not a single important plant or factory has been built in
Russia in the last eight years. The economy is operating
exclusively by utilizing productive capacity created under
socialism. It is clear that such an economic system cannot
survive, because its physical capital is being depleted ... net
fixed capital investment has been negative for a number of
years; and fixed capital stock is being reduced from year to
year. It is difficult to find anything even remotely similar to
macroeconomic suicide on such a scale in the modern world."
Furthermore, writes Menshikov, "real wages in 1998 were only
49.3 percent of their 1991 level [the year the Soviet Union
fell apart--FG]. The share of the population below the
subsistence level was 24.1 percent, again by official count.
Real wages fell drastically again after the August 1998
crisis."
The share of labor in the gross domestic product fell from
47.5 percent in 1991 to 21.6 percent in 1995. This all adds up
to an enormous increase in profits and surplus value extracted
from the 65 million Russian workers.
Because the Russian bourgeoisie is totally parasitic, much
of its accumulated wealth must inevitably find its way abroad.
Thus the liquidation of the assets of socialist construction
built up over one sixth of the earth's surface, and the growth
in poverty and intensification of exploitation of the Russian
workers, is reflected in an enormous infusion of value into the
imperialist financial system. This has helped significantly to
keep imperialism afloat.
It is not the financial officials or central bank managers,
such as Chair of the Federal Reserve Board Alan Greenspan, that
are keeping the system going. It is the plunder of the
world.
Greenspan and other financial wizards express wonder at the
prolonged nature of the Wall Street boom. But it is entirely
explainable through simple Marxism. The system got a reprieve
with the greatly expanded opportunities for exploitation and
plunder that arose with the collapse of the USSR.
But capitalist plunder and exploitation have contradictions
that cannot be overcome. The enormous technological capacity to
produce steadily outstrips the capacity of the world to absorb
the commodities that must be sold at a profit. And this
situation is only aggravated by the constant lowering of
wages.
This system is rapidly reducing huge portions of the world
to extreme poverty. Such a system breeds rebellion and
resistance. Despite this prolonged period of capitalist growth,
the system is resting more and more on the unstable foundation
of Wall Street speculation and inflated stock markets.
This article is copyright under a Creative Commons License.
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