The great ruble scam

By

Claire Sterling

Why would anyone in the West want to hold Soviet rubles? The question has puzzled police in half a
dozen countries for more than a year, as they've stumbled separately upon black market swaps of rubles
for dollars in staggering quantities.

The evidence, still incomplete, points to the criminal penetration of the former Soviet Union by drag
cartels and money launderers. The prevailing economic, political, and judicial confusion; the instability
discouraging serious Western investment; the rapid expansion of organized crime in Leonid Brezhnev's
day--all these factors have made Russia a magnet for the international underworld.

The first signs of the illegal dollar-for-ruble swaps appeared in the winter of 1990-91. Even though the
ruble was sliding fast in the collapsing Soviet economy, police phone taps in Italy revealed a ring of
professional money-launderers discussing multi-billion ruble deals. A trainload of rubles passed
through Poland in transit for Belgium. Large suspect ruble transactions were reported by Belgian,
German, and Netherlands police. A Swiss undercover agent was offered a whole shipping container
stuffed with rubles. Billion-dollar ruble lots were offered to American investors.

Since then, a special parliamentary commission of the Russian Federation has documented
government-backed transactions involving as many as half a trillion rubles. It was because of a single
colossal transaction that the commission was set up in January 1991. The contract, blocked at the last
moment, involved a government-sponsored exchange of 140 billion rubles on the black market.

At the time, 140 billion rubles amounted to $84 billion at the official exchange rate (1.6:1) and $9.3
billion at the top black-market rate (15:1). Understandably, "The Case of the 140 Billion" caused an
uproar in Moscow. The parliamentary commission, politically on the Russian government's side, must
have flinched at what it found. In two reports, dated February 15 and March 1, 1991, it provided
startling details:

Beginning in the summer of 1990, three different Western "businessmen" approached the Russian
government with offers to buy 140 billion rubles or more for $7.8 billion and up (a super-favorable rate
of 18 to 1).

The first to come along, in August 1990, was a "John Ross" of New York, who proved to be Jan
Semyonovich Zubok of Ukraine, twice jailed there for theft before moving to the United States. Among
the documents before the commission was a protocol of intent, signed by Russia's then-prime minister
Ivan Silayev, endorsing a 300-billion ruble deal with "Mr. Ross" before his exposure.

Next came a Leo Vanta who, when asked for credentials, proffered an autographed picture of President
Reagan. There followed a Colin Gibbons of Britain, who had the signatures, the government sanction,
and the authorized Russian bank account on a 140-billion-ruble contract when he was stopped.

The signatory on the Russian side was A.A. Sveridov, a regional deputy from Chelyabinsk in the Urals,
signing for an improbable and penniless "Ekho Manufacturing Ecological Company." His guarantor
was Russia's deputy prime minister, Gennady Filshin.

Filshin had given his blessings to an arrangement whereby Gibbons was to put $7.8 billion in a Swiss
bank, while 140 billion rubles would be deposited to his name in a Russian bank. Both accounts would
be under Gibbons's control. On these singular terms, the deputy prime minister directed Russia's
ministry of trade to "render assistance and support for the contract," and instructed the Moscow inter-
regional commercial bank to open the necessary ruble account (#713713).

Testifying before the commission, Filshin claimed that Gibbons was going to spend the dollars to
"saturate the Russian market" with 700,000 tons of meat, 300,000 tons of butter, and other "top-
quality" Western goods. He was also supposed to "invest and reinvest" his newly acquired rubles in the
Russian economy. In fact, there were no such clauses in the contract, nor did Gibbons promise anything
of the kind. He was simply interested in the currency. He told the investigators only that a client had
asked him "to buy a great sum of Soviet rubles."

The last straw was the discovery that Gibbons was a professional con-man, wanted by Interpol on a
British warrant. Upon learning all this, the commission ruled that Deputy Prime Minister Filshin should
be relieved of his duties for "incompetence, negligence, insincerity, abuse of powers and deception of
the Parliamentary Commission."

The idea that Russia's highest leaders could have worked such a scam seemed so incredible that many
thought the KGB must have framed them. Suspicions grew when hardliner Valentin Pavlov, premier of
the still-existing Soviet Union, ordered the recall of all 50- and 100-ruble notes, putting the blame on
Boris Yeltsin's government for its Gibbons deal. Though Pavlov's order virtually wiped out popular
savings, he maintained that it was really meant to stem an uncontrollable flow of rubles to the West,
and "a river of dirty money" coming back. Predictably, the Communist premier accused Western banks
of an imperialist plot to dethrone President Mikhail Gorbachev and destabilize the Soviet economy.
Western diplomats dismissed the charge as "bilge"--Britain's foreign minister called it "manifestly
dotty"--but Pavlov was wrong only about the plot, not about the money.

Rubles were certainly pouring out of the Soviet Union from every side in 1991; seizures at the border
were up 200 percent, reported the head of Soviet customs. And dirty money was undoubtedly flowing
in. With serious Western businessmen holding back, foreign speculators were teaming up with
members of an estimated 3,500 domestic "Red Mafia" groups to fill the breach. According to Interpol,
at least 40 percent of the USSR's new joint ventures were set up with funds "of dubious origin."

The Russian federation alone had tried to swap a good half trillion rubles for dollars in various black
market deals, the parliamentary commission found. The goal wasn't necessarily personal gain: it was
government policy. Filshin, who went on to become Russia's minister of foreign trade, still insists that
the Gibbons deal was "a version of the Marshall Plan." That and similar deals for black market dollars
had been approved by all his superiors--including Boris Yeltsin, the commission noted. Plainly, Russia's
democratic leaders, emerging from the Communist dark ages, were sadly unaware of the sharks circling
in the outside world, and knew little of acceptable financial practices in the West. Seeing what they
thought was a shortcut to salvation, they took it.

While some of their deals fell through, there is ample evidence that hundreds of billions of rubles were
up for sale in Europe and the U.S. while the Ross-Vanta-Gibbons talks went on in Moscow. It was
during the winter of 1990-91 that billion-dollar lots were offered to American investors; the trainload of
rubles passed through Poland; the Italian police intercepted phone calls in Verona and Rimini involving
multi-billion ruble deals (for which Judge Roberto Sapio ordered fourteen arrests); and a Swiss
undercover agent in Bellinzona actually bought a sample 100,000 rubles from someone claiming to
have a container full. The seller was notorious Turkish heroin trafficker Hamza Turkuresin, closely
associated with Calabria's criminal 'Ndrangheta, and with a group known to belaundering cocaine
money for Colombia's Medellin cartel.

In Geneva that December, Judge Jean-Pierre Trembley ordered the arrest of a Colombian, a German,
and three Argentines representing the same money-launderers. They had been trying to broker a swap
of 70 billion rubles for $4.6 billion. Trembley was unable to locate the rubles, reportedly left in a
container with Brink's in Holland, and he finally released the suspects. "I just couldn't believe that
anybody in his right mind would swap narcodollars for rubles that nobody can spend," he said.

These rubles could be spent, however. They were offered to foreign investors either in bank-to-bank
credit transfers or with certificates of reentry and permission to open Russian bank accounts: the
parliamentary commission and all Western police accounts agree on this. Under these conditions, the
rubles could be used to buy whatever is for sale in the former Soviet Union, whose natural resources--
the richest in the world--can be had for giveaway prices. (A ton of petroleum, for instance, can today be
bought for $25 in black market rubles and sold for $160 in Europe.)

This was demonstrably why international criminals were so interested in rubles. Their true design was
actually written into the protocol of intent signed by Russia's former prime minister Silayev with "John
Ross," the Ukrainian ex-con. In exchange for the black-market dollars, Russia's government undertook
to "allow foreign businessmen to buy and export, without duty, a strictly limited range of raw and other
materials, waste products for recycling, products made of precious materials, etc."

In a confidential report to Interpol in April of last year, the head of the Soviet interior ministry's
organized crime department, Gennady Chebetarev, described how Russia and the other Soviet republics
were already being looted in just this way. "Mafia-type groups [are committing] large-scale unlawful
transactions with foreign partners," he wrote. High quality materials, precious metals and alloys are
being bought up for export "at scrap metal" prices. Titanium is being reworked and exported as
"waste." The fact that such information is now coming to light may help Russia's democratic leaders
cope with this mounting threat to its economic sovereignty.

American Spectator; June 1992, Vol. 25 Issue 6, p.35