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"In any Russian village people aged 5 to 85, five or six years ago could have told you the same thing we saw in the pages of the international press." Grigory Yavlinsky Russian Parliament Opposition Leader

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"It is truly impossible in many instances to differentiate between Russian organized  crime and the Russian state"

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"Russian organized crime can use its resources to corrupt institutions here in the United States. The recent case involving the Bank of New York may prove to be one such example.

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"Organized crime shaped the post communist Russian banking industry and now manages it."

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"Russia is the biggest mafia state in the world, the super power of crime that is devouring the state from top to bottom."

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"While the U.S. and the West were bailing out Russia's economy with money from the IMF and the World Bank, 700 Russian officials were reaping the financial benefits of insider trading..."

Dick Armey
House Majority Leader

"A substantial portion of the American taxpayer money to the IMF may now be financing the lavish lifestyles of Russian oligarchs"

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Did the NY Times reporter who broke the Bank of New York story, become a patsy for Russian mob? True Story Behind O'Brien's Story

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Arthur Christy Inkombank's lawyer
(former US Attorney)

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RUSSIA'S ROAD TO CORRUPTION Speaker's Advisory Group on Russia

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American Russian Law Institute

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Chronology of the Russian Financial
Crisis 1998
by Clifford Chance Moscow

Date Event/Document Document Content
23 March 


Yeltsin fires Prime Minister Viktor Chernomyrdin and the entire Cabinet, saying reforms were not dynamic enough. He names virtually unknown Energy Minister Sergei Kiriyenko as acting prime minister. Markets already uneasy over turmoil in Asia and a slump in world oil prices are shocked, and many investors retreat to the sidelines amid the political uncertainty. 
27 March Yeltsin formally nominates Kiriyenko as premier, vowing to dissolve parliament if it fails to approve him, which it finally does one month later. 
29 April New Cabinet, packed with reformers, is announced. Markets mainly rise over this period, but major investors still sidelined. 
12 May Coal miners protest unpaid wages, blocking a major railway. Stocks tumble, due mainly to a law restricting foreign ownership of shares in electricity giant UES. 
13 May Russian markets fall further on news of Asian woes, amid violence in Indonesia and the poor state of Japan's economy. 
26 May Yeltsin signs austerity package to stabilise budget and cut spending. Russia suffers a blow as no one bids for a 75 percent stake in Rosneft, the last big oil company still in state hands. Finance minister announces spending cuts of $10 billion. 
27 May Central Bank triples key interest rate to 150 percent after GKO yields soar and shares tumble. 
29 May Influential Russian tycoons pledge to back Yeltsin. Yeltsin appoints Boris Fyodorov to head tax service. 
4 June Central Bank cuts key interest rate to 60 percent from 150 percent in a sign of growing confidence. 
18 June The International Monetary Fund delays an expected $670 million instalment of its $9.2 billion loan to Russia, citing problems with implementing fiscal reforms. 
19 June Russia asks for additional $10 billion to $15 billion credit package from the IMF and other lenders. 
23 June Yeltsin and Kiriyenko present anti-crisis plan consisting mainly of tax laws. Yeltsin says the crisis has become "so acute that there are social and political dangers." He tells the Duma to waste no time in passing the laws, hinting at tough steps if it resists. 
25 June The IMF approves the release of the $670 million instalment, but it fails to impress traders and shares fall again. 
1 July Siberian miners renew picketing of railways, demanding wage arrears and the resignation of Yeltsin and his government. Stocks tumble on overall uncertainty. 
13 July International lenders pledge $22.6 billion in extra credits spread over 1998 and 1999. Stocks briefly soar. 
15 July The State Duma fails to adopt most of government anti-crisis plan, approving measures that Kiriyenko says will provide only one-third of targeted revenues. He vows to compensate through government resolutions and presidential decrees, a legally questionable approach. 
19 July Yeltsin vetoes reduction in tax cuts and decrees a fourfold hike in land taxes after Duma rejects most of the revenue-raising elements in the anti-crisis package. 
20 July IMF approves its $11.2 billion share of the new international loans. First $4.8 billion made available. 
29 July Yeltsin cuts short his vacation and flies to Moscow citing "urgent business," prompting fears of a Cabinet reshuffle, although he replaces only Federal Security Service Chief. 
4 August Yeltsin resumes vacation in Valdai lake region. 
6 August World Bank approves $1.5 billion structural adjustment loan for Russia, including an immediate advance of $300 million. 
10 August Miners lift rail blockade after a temporary deal with the government. But stocks fall and GKO yields rise as investors take money out of Russian markets amid fears of devaluation and doubts over state finances. 
12 August Central bank says interbank market virtually paralysed by liquidity problems and lack of confidence; imposes limits on purchases of foreign exchange by banks and says it will act to prevent crisis from spreading. 
13 August George Soros advises the Russian government to devalue rouble and introduce a currency board, pegging rouble to dollar or Euro. Central bank official says devaluation would not help solve crisis. Stocks plunge to lowest levels in more than two years and short-term GKO yields soar as banks dump paper for roubles. Central bank expands banks' access to overnight credits. Kiriyenko says there is no economic basis for the market decline and his government is in position to meet obligations. 
14 August Stocks rebound and debt market stabilises. Yeltsin, on visit to Novgorod, rules out devaluation and backs Kiriyenko. He says he will not cut short his vacation and urges parliament to hold special meeting to consider government anti-crisis drafts. Russia's communist bloc backs Yeltsin's call for an extraordinary summer session of parliament, saying it should focus on the current crisis. Some major banks have trouble meeting payments to each other. Dollars 

become scarce on the street. 

17 August Statement of the Government and the Central Bank Government plans: 
  • non-residents are not allowed to invest in short term (i.e. less than 1 year) rouble assets;
  • conversion of GKOs/OFZs into new governmental securities; and
  • 90 day moratorium on certain hard currency transactions.
17 August Decision of the Board of Directors of the Central Bank Imposes a 90 day moratorium on various hard currency transactions connected with the movement of capital.
17 August Resolution of the Government No. 980 "On the Organisation of Work for the Payment of Certain Types of State Securities" The Ministry of Finance is authorised to prepare draft legislation on the procedure for repayment of GKOs/OFZs maturing prior to 31 December 1998. GKOs/OFZs issued into circulation prior to 17 August 1998 to be repaid with new fixed-coupon federal loan bonds.
Kiriyenko insists the moves do not amount to a default on the debt or a devaluation of the rouble, but the exchange rate on the street collapses and Russians line up in a frantic search for dollars.
19 August Central Bank telegram No. 177-T Generally restates the Decision of the Central Bank of 17 August 1998.
19 August Central Bank Directive No. 320-U of 19 August 1998 "On currency operations of residents" Generally restates the Decision of the Central Bank of 17 August 1998 and provides that it is effective from the date of such Decision.
21 August Statement of the Central Bank The Central Bank "intends" to provide state guarantees to private deposits in all Russian banks that have entered into an appropriate agreement with Sberbank.
21 August Central Bank Directive No. 323-U The Central Bank limits the spread between the sale and purchase price of cash currency to 15 percent.
23 August Presidential Decree No. 983 "On the Government of the Russian Federation" Kiriyenyo's Government is dismissed and Chernomyrdin is named acting prime minister.
25 August Presidential Decree No. 987 "On Performance of Duties by the Members of the Government of the Russian Federation" President instructs members of the Government (except Kiriyenko) to continue to serve until a new government is formed.
25 August Presidential Decree No. 988 "On Certain Measures for Stabilising the Financial System of the Russian Federation" The President instructs Chernomyrdin to prepare a procedure for redemption of GKOs/OFZs maturing prior to 31 December 1999.
25 August Resolution of the Government No. 1007 "On Redemption of State Short-Term Zero-Coupon Bonds and Federal Loan Bonds with Fixed and Floating Coupon with Maturity up to 31 December 1999 and Issued into Circulation before 17 August 1998" Provides procedure for redemption of GKOs/OFZs issued prior to 17 August 1998 and maturing prior to 31 December 1999 and subsequent reinvestment of funds received upon redemption. Unlike Resolution of the Government No. 980 of 17 August 1998, the holders of GKOs/OFZs will be paid in roubles and not in "new securities".
26 August Central Bank Directive No. 328-U of 26 August 1998 "On the introduction of temporary limitations on the execution by residents of operations connected with the movement of capital" A more extensive version of Central Bank Directive No. 320-U of 19 August 1998 providing that it is effective from 17 August 1998. It deals with closing loopholes in payments to non-residents under loans in excess of 180 days.
26 August The Central Bank revokes the licence of Bank Imperial.
28 August The Central Bank appoints a temporary administrator for SBS-AGRO Bank.
28 August Central Bank Regulations No. 52-P "On the Procedure for the Issue of the Bonds of the Central Bank of the Russian Federation" and No. 53-P "On the Circulation of the Issues of Bonds of the Central Bank"  
31 August Chernomyrdin rejected by Duma as prime minister, 253 to 98.
31 August Informational Notice from Central Bank and Ministry of Finance The Central Bank and the Ministry of Finance distributed an "Informational notice on the refinancing programme for state short-term zero-coupon bonds and federal loan bonds with fixed and floating coupons with maturity up to 31 December 1999 and issued into circulation prior to 17 August 1998" and a "Clarification on the Procedure for the Redemption of State Short-term Zero-coupon Bonds and Federal Loan Bonds with Fixed and Floating Coupon Yields with Maturity up to 31 December 1999 and Issued into Circulation Prior to 17 August 1998".
1 September Central Bank Regulation No. 55-P of 1 September 1998 "On the Procedure for Effecting Payments in Foreign Currency under Export and Import Operations Performed by Residents of the Russian Federation" General rule: (i) for imports money should be paid only after goods have been delivered/services performed in Russia and (ii) in the case of exports, money should be paid before goods leave Russia.
1 September Tokobank license revoked by Central Bank. The Central Bank discloses details of its plan to provide state guarantee for private depositors of various commercial banks. Metro tokens increase from 2 to 3 roubles.
2 September The Federal Securities Market Commission challenges the validity of the Central Bank bonds to be issued under Central Bank Regulation No. 52-P and 53-P of 28 August 1998.
2 September The Central Bank details further its plan to guarantee private depositors. 
3 September The Moscow City Arbitration Court accepts the application for bankruptcy of Tokobank.
4 September Inkombank, the third largest bank in Russia, is placed under temporary Central Bank administration.
4 September Central Bank Directive No. 344-U "On Suspending Payments by Residents to Non-Residents on Forward Currency Contracts" Prohibits payments under forward currency contracts during the moratorium.
7 September Rouble exchange rate rumoured from 20 to 40:$1. Sergei Dubinin resigns as head of Central Bank. Chernomyrdin rejected by the Duma for the second time, 273 to 138. Moscow District Court suspends temporary administration of Inkombank. Long lines appear at gas stations in anticipation of price increases.
8 September Gasoline prices rise from 2.6 to 3.7 roubles per litre, much less than anticipated. A Moscow court voids the Central Bank’s takeover of Inkombank. The rouble "stabilises" at about 20:$1, down from 6.2 23 days earlier.
9 September Joint Ministry of Finance and Central Bank Clarification on the "Procedure for the Redemption of State Short-term Zero-coupon Bonds and Federal Loan Bonds with Fixed and Floating Coupon with Maturity up to 31 December 1999 and Issued into Circulation Prior to 17 August 1998". The clarification extends until 18 September 1998 (inclusive) the date for holders of GKOs/OFZs maturing from 17 August 1998 to 3 September 1998 to apply to acquire new state bonds.
9 September Rouble jumps to 14:$1. Yeltsin talks to or about Lebed, Stroyev, Primakov and Maslyukov. The Association of Russian Banks files with the Supreme Court of the Russian Federation a claim to invalidate various recently adopted legal acts.
10 September Rouble falls to 9:$1 as exporters are required to sell half their earnings and Gazprom dumps dollars on the market. Chernomyrdin withdraws and Yeltsin nominates Yevgeny Primakov as Prime Minister. Inkombank agrees to let the Government have 50% + 1 share, but not 75% + 1.
11 September No roubles available on the street. Primakov approved 317 to 63. He names Yuri Maslyukov as First Deputy Prime Minister for Economic Policy (Communist Duma member and former head of Gosplan) and Igor Ivanov to replace himself as Foreign Minister. At Yeltsin’s request, the Duma names Victor Geraschenko, who held the job during 1992-94 when hyper-inflation raged and was called by Jeffrey Sachs "the world’s worst Central Banker", to again head the Central Bank. Rosbank formed by Uneximbank, Most Bank, and Bank Menatep. Renaissance cancels merger with MFK. MFK expected to join Rosbank.
15 September Rouble remains artificially low. The Moscow Times speculates it is because forward currency contracts can be settled more advantageously. The Central Bank suspends the temporary administration of Inkombank until the 4 September Order of a Moscow Court is overturned.
16 September Alexander Shokhin, regarded as a centrist and supporter of production sharing, is appointed Deputy Prime Minister for Finance. The rouble falls 22% from 9.61: $1 to 12.45: $1.
17 September Two more relative moderates, Vladimir Ryzhkov (Our Home is Russia Duma Speaker) and Vladimir Bulgak (Dep PM for Science and Technology under Chernomyrdin) join the Cabinet, as Deputy Prime Ministers for social policy and industry and communications, respectively. The rouble continues its collapse. Shokhin states that there will be a week’s delay in debt restructuring. News reports indicate 160,000 professionals lost their jobs in Moscow since 17 August.
18 September Regulation 55-P is repealed by Directive No. 352-u. The rouble hits 14.6: $1 following the Central Bank’s statement that it will print new money to increase liquidity in Russia’s failing banks. Late Friday and into Saturday the Central Bank buys GKOs from major Russian banks, which are supposed to use these proceeds to pay their debts. Banks which cannot repay their debts are theoretically to be closed. An estimated 3.2 billion in roubles $256 million] added to money supply. Foreign holders of $11 billion in GKOs (now worth $5 billion at current exchange rate) not allowed to participate. Vladimir Ryzhkov refuses the thankless post of Deputy Prime Minister for Social Issues, claiming inexperience (age 32). Vadim Gustov, Governor of Leningrad Oblast accepted a position as First Deputy Prime Minister for Regional Affairs.
21 September Central Bank does not permit currency exchange to open. Official rate remains at 16.38. Gennady Kulik, Agrarian Party (ally of communists) named Deputy Prime Minister for Agriculture.
22 September Valentina Matviyenko, Ambassador to Greece, nominated to be Deputy Prime Minister for Social Affairs. Finance and State Tax Service still open.
23 September MGTS (Moscow City Telephone) pays $9mm in interest due on Eurobonds issued March ’98.
24 September PM Primakov states that the 17 August announcements were not authorised by the President, not well thought out and resulted in chaos. Shokhin claims that Russia "joined" the Paris Club on unprofitable terms and demands negotiations on offsets. The Paris Club refuses to renegotiate Russia’s debt while talks between IMF and Russia continue. Shokhin wants IMF funds agreed to in July and negotiations on changing the agreement since both the IMF and Russia are equally responsible for the present situation. Geraschenko warns that "excessively greedy and stubborn foreign banks" may get nothing. "I do not want to scare the West with statements about a default on Russia’s foreign debts, but Western financial organisations should be loyal." Western institutions want to wait until year end to see how things develop, giving Russia few options. Sale of Rosneft cancelled again. Alexander Livshits reportedly nominated as Finance Minster, with Sergei Generalov reappointed Fuel and Energy Minister, along with Sergei Frank at Transport. Law on Bankruptcy of Financial Institutions passed second and third readings in Duma.
25 September Final Cabinet appointments: Nikolai Aksenenko, Minister for Railways; Pavel Krashennikov, Minister of Justice; Boris Pastukhov, Minister for CIS Cooperation; Ramazan Abdulatipov, Minister for Nationalities; Dmitri Gabunia, Minister of Trade and Industry; Andrei Shapovaliants, Minister of Economy; Mikhael Kirpichnikov, Minister for Science & Technology. Mikhail Zadornov reappointed as Minister of Finance. Official ruble rate will be 15.6099. Sergei Dubinin becomes Deputy Chairman of Gazprom Bank. Shokhin resigns after ten days, citing objections to reappointment of Zadornov as Minister of Finance. Others say he resigned because IMF has refused September tranche of July rescue package.
25 September Lehman attaches $117 million in London accounts of Unexim and Inkombank. Inkombank owes Lehman $87 million in forward contracts. Deadline for GKO choices again postponed. Central Bank states another 10.6 billion roubles ($668mm) was exchanged with commercial banks. Debts to regional tax agencies were paid by banks withdrawing rubles from their reserves, not by the CB purchasing GKO’s. 1.96 billion roubles taken from reserves. September 18 took 3.3 billion roubles. Dmitry Vasiliev announces he will resign if the Government follows the policies of Geraschenko and Zadornov.
28 September Boris Fyodorov fired by PM as head of State Tax Service; Viktor Khristenko, Deputy PM fired as well. Farit Gazizullin, reappointed as State Property Minister Yeltsin states he has not accepted Vasiliev’s resignation as head of Federal Commission on the securities markets. Rouble rate set at 15.88
29 September Rouble rate set at 15.99. Lehman attaches SBS Agro accounts in London in a dispute over a "repo" transaction. Georgy Boos, Duma Deputy, named head of tax service. Press revealed Dubinin’s salary of $240,000 per year or 1,258,113,518 rubles, the same as the salaries of 210 Duma deputies. 
30 September Uneximbank has frozen the accounts of Lehman in Moscow at Uneximbank and other Moscow banks. Luzhkov in Blackpool for Tony Blair’s Labor Party conference says he is considering running for President if there are no qualified candidates. He supports a "left-center" mix of a market economy with social concerns.







Copyright American Russian Law Institute
All rights reserved

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vs.   A.R.L.I.


ARLI on Capitol Hill
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Congressional Statement of Emanuel Zeltser, Director and  General Counsel of ARLI

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Russian mob controlled bank at the_heart
of the money-
laundering scandal



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The Bank of New York
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money laundering scandal



The first official English language reference source of Russian commercial laws
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Compiled, translated and codified by the staff of American Russian Law Institute: Emanuel E. Zeltser, Esq., Anna Reid, LL.M., LL.D., and Alexander Fishkin, LL.D.  together with the Academy of  the Ministry of Justice of Russia, and  the Law School of the University of Pittsburgh


In Bed with the Banker
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Former representative

of Inkombank

"... if they would know the real nature of the expenses, they wouldn't ever say that I spend like $30,000 on the lingerie because it wasn't lingerie" said Janna in her sworn testimony "It was curtains for the office...". (Janna's testimony in the Federal Court.) Inkombank shareholders sued its former management for squandering tens of millions of dollars for personal benefit, including purchases of exotically priced intimate apparel for their concubines. More...