Mr. President, I take this opportunity today in my capacity as Co-Chairman of the Commission on Security and Cooperation in Europe, known as the Helsinki Commission, to draw the attention of my Senate colleagues to the growing problem of official and unofficial corruption abroad and the direct impact on U.S. business.
Last week I chaired a Commission hearing that focused on the issues of bribery and corruption in the OSCE region, an area stretching from Vancouver to Vladivostok. The Commission heard that, in economic terms, rampant corruption and organized crime in this vast region has cost U.S. businesses billions of dollars in lost contracts with direct implications for our economy here at home. Ironically, Mr. President, in some of the biggest recipients of U.S. foreign assistance, countries like Russia and Ukraine, the climate is either not conducive or is outright hostile to American businesses.
This week a delegation of Russian officials led by Prime Minister Sergei Stepashin are meeting with the Vice President and other administration officials to seek support of the transfer of billions of dollars in loans and other assistance, money which ultimately comes from the pockets of U.S. taxpayers. I recently returned from the annual session of the OSCE Parliamentary Assembly in St. Petersburg, Russia, where I had an opportunity to sit down with U.S. business representatives to learn from their first-hand experiences and gain a deeper insight into the obstacles they face.
During the 105th Congress, I introduced legislation, the International Anti-Corruption Act, to link U.S. foreign aid to how conducive recipient countries are to business investment. I intend to reintroduce that legislation shortly, taking into account testimony presented during last week’s Commission hearing. The time has come to stop doing business as usual with the Russians and others who gladly line up to receive our assistance then turn around and fleece U.S. businesses seeking to assist with the establishment of legitimate operations in these countries. An article in the Washington Post this week illustrates the type of rampant and blatant corruption faced by many in the U.S. business community, including companies based in my home state of Colorado.
Mr. President, I ask unanimous consent that the full text of this article be printed in the Record. There being on objection, the material was ordered to be printed in the Record, as follows: Investors Fear “Scary Guy” in Russia Talks (By Steven Mufson): Russian Prime Minister Sergei Stepashin arrived in Seattle on Sunday to court American investment in his country’s ailing economy, but his entourage included a regional governor who has been accused of using strong-arm tactics to wrest assets from foreign investors.
The controversial member of Stepashin’s delegation is Yevgeny Nazdratenko, governor of Primonsky province in Russia’s Far East, who is embroiled in several disputes with foreign business leaders. “Basically the governor is a pretty scary guy,” said Andrew Fox, who sits on the boards of more than 20 companies in the region and is the honorary British consul in Valdivostok. Fox said that Nazdratenko summoned him on June 3 and threatened to send him “on an excursion to visit a very small room” where Fox would be kept until he agreed to give the governor control of a crucial stake in a shipping company and leave the company’s existing management intact. Fox left that week and is now in Scotland. David Gens, finance director of Seattle-based Far East Maritime Agency, said the Russian partner of one of the company’s affiliates was ordered to contribute 10 percent of revenue for the rest of the year to Nazdratenko’s reelection campaign.
In yet another dispute, an American investor has alleged that Nazdratenko packed the board of a company, diluted the ownership interest of foreign investors and diverted funds to coffers for his December reelection campaign. Senior administration officials said Nazdratenko would not be included in meetings with President Clinton, Vice President Gore or other top U.S. officials today in Washington. But several business leaders said the mere presence of the Vladivostok politician, who accompanied Stepashin in Seattle for a tour of a Boeing plant and a dinner hosted by Washington Gov. Gary Locke (D), was sending a bad signal to investors. Russia has defaulted on its debts, it has a lot of economic problems, it should be extra careful to woo foreign investors, said a Moscow-based spokesman for a group of foreign investors in a dispute with Nazdratenko over a Vladivostok-based fishing company. “To bring the poster boy of corruption along to the United States is just staggering.”
Nazdratenko has repeatedly and forcefully denied allegations in the Russian media of tolerating corruption and organized crime. As the governor of an immense territory with valuable forests and rich fishing grounds north of Japan, Nazdratenko is a political powerhouse and runs his region with little supervision from authorities in faraway Moscow.
In Seattle, Stepashin told business leaders: “There are good prospects for investment in Russia, so please don’t lose any time.” But Fox, who has lived in Vladivostok for seven years and represents foreigners with more than $100 million invested in the area, says he would like to ask Stepashin: “Which bits of Russia are you talking about?” “Everyone knows it is a risky thing to invest in Russia,” Fox added. “But it’s so outrageous what’s being done” in Vladivostok. “It’s total lawlessness. Is that where Russia is heading?” Fox asked. “If so, then there is no sense in spending money there, and Russia is going to go backwards.”
Acknowledging the complaints of many foreign investors, Stepashin told members of a U.S.-Russia business council in Washington last night that “all investments have to be protected not only in word, but indeed.” He said, “We understand that investors have every reason to be weary,” but added that “we are dead set on changing our attitude.”
Many of those who have suffered from the fickle nature of Russia’s economic system are in Seattle, the first stop in Stepashin’s U.S. visit. Gens estimates that one Vladivostok fishing trawler company, Zao Super, owes tens of millions of dollars to Seattle-area suppliers of nets, fuel, spare parts and maintenance services. Yet the Russian Committee of Fisheries on July 2 transferred most of Zao Super’s main assets, the fishing boats, to another company whose major shareholder and chairman is a close associate of Nazdratenko. Zao Super, which allegedly was told to divert money to Nazdratenko’s campaign, has $350 million in debts being renegotiated by the Paris Club, a creditors’ group comprised of the governments of leading industrialized nations.
Despite these and other economic problems, Stepashin is widely expected to receive support in Washington for Russia’s quest for $4.5 billion in loans from the International Monetary Fund and up to $2 billion from the World Bank. He will meet with officials of those institutions on Wednesday. The IMF funding is important to negotiations on rescheduling Russia’s crushing debts. Russia, which has $17 billion in debt payments due this year, already has defaulted on many obligations. The IMF has been reluctant to support Russia since a combination of capital flight, poor tax collection, weak budget controls, corruption and lumbering state enterprises led to a collapse of the Russian currency, the ruble, in August 1998. But senior U.S. and IMF officials have been equally reluctant to isolate Russia by cutting off economic assistance. “We are going ahead with a package which I hope is credible, which I hope will be implemented fully,” Alassane Quattara, deputy managing director of the IMF, told Reuters. “The first intentions and the first measures taken by the new government are quite positive. ….. The board knows the parameters, the difficulties and the risks.”
Mr. President, instead of jumping on the bandwagon to pump billions of additional tax dollars into a black hole in Russia, the administration should be pressing the Russian leadership, including Prime Minister Stepashin, to root out the kinds of bribery and corruption described in this article that have an overall chilling effect on much needed foreign investment. Left unchecked, such corruption will continue to undermine Russia’s fledgling democracy and the rule of law and further impede moves toward a genuine free market economy.