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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
        U.S. POLICY TOWARD RUSSIA, PART I: WARNINGS AND DISSENT

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                       WEDNESDAY, OCTOBER 6, 1999

                               __________

                           Serial No. 106-90

                               __________

    Printed for the use of the Committee on International Relations

                    U.S. GOVERNMENT PRINTING OFFICE
62-933 CC                   WASHINGTON : 2000

                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
    Carolina                         ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
                  Mark Gage, Professional Staff Member
                    Marilyn C. Owen, Staff Associate

                            C O N T E N T S

                              ----------                              

                               WITNESSES

                                                                   Page

The Honorable David Swartz, U.S. Foreign Service, Retired, Former 
  U.S. Ambassador to Belarus.....................................     7
Fritz Ermarth, U.S. Central Intelligence Agency, Retired, Former 
  Member, National Security Council Staff........................    10
J. Michael Waller, Ph.D., Vice President, American Foreign Policy 
  Council, and Editor Demokratizatsiya: The Journal of Post-
  Soviet Democratization.........................................    35
Mr. Kenneth R. Timmerman, President, Middle East Data Project, 
  Inc., and Contributing Editor, ``Readers Digest''..............    37
Mr. Martin A. Cannon, Vice President, Emerging Markets, A. T. 
  Kearney, Inc., and Managing Director, CIS Operations, on behalf 
  of the U.S.-Russia Business Council............................    39

                                APPENDIX

Prepared Statements:
The Honorable Benjamin A. Gilman, a Representative in Congress 
  from New York and Chairman, Committee on International 
  Relations......................................................    52
Lieutenant Jack Daly, United States Navy.........................    54
Ambassador Richard L. Armitage, former Coordinator for U.S. 
  Humanitarian and Technical Assistance, Department of State.....    60
Ambassador David H. Swartz, Retired Senior Foreign service 
  Officer........................................................    61
The Honorable Edward R. Royce, a Representative in Congress from 
  California.....................................................    67
The Honorable Marcy Kaptur, a Representative in Congress from 
  Ohio...........................................................    68
Fritz W. Ermarth, U.S. Central Intelligence Agency, Retired......    73
J. Michael Waller, Ph.D., Vice President, American Foreign Policy 
  Council........................................................    77
Kenneth R. Timmerman, President, Middle East Data Project, Inc...    84
Martin A. Cannon, Vice President and Managing Director, CIS 
  Operations, A.T. Kearney, Inc..................................    92
Additional material:
Letter of The Honorable Marcy Kaptur, to the President of the 
  United States dated July 21, 1999 concerning U.S. farm prices 
  and bumper crops...............................................   103
Letter to The Honorable Marcy Kaptur from The Citizens Network 
  for Foreign Affairs, Inc., dated October 5, 1999 concerning 
  U.S. food assistance to Russia.................................   105
Proposed Addition to the Conference Report for H.R. 1906 as 
  Reported, Offered by Ms. Kaptur of Ohio........................   107
Proposed Addition to the Conference Report for H.R. 1906 Offered 
  by Ms. Kaptur..................................................   110
Article published by Novaya Gazeta: ``Default Means Self Above 
  Service,'' as translated from Russia...........................   112

        U.S. POLICY TOWARD RUSSIA, PART I: WARNINGS AND DISSENT

                              ----------                              

                       WEDNESDAY, OCTOBER 6, 1999

                  House of Representatives,
              Committee on International Relations,
                                           Washington, D.C.
    The Committee met, pursuant to notice, at 10:10 a.m. In 
Room 2172 Rayburn House Office Building, Hon. Benjamin A. 
Gilman (chairman of the Committee) Presiding.
    Chairman Gilman. The Committee will come to order.
    It is clear that the path that the Administration has 
followed over the past few years with regard to Russia is 
rapidly approaching a dead end. The pattern is clear: Top 
American officials have repeatedly described Russian President 
Boris Yeltsin as advancing the objectives of democracy and 
economic reform in Russia. Yet, for years now, his commitment 
to those objectives is a bit questionable at best. In fact, 
some of Mr. Yeltsin's actions have been inconsistent with those 
objectives and his personal engagement in the day-to-day 
governance of Russia now seems to consist largely of his 
routine hirings and firings of prime ministers.
    Over the past few years, top Administration officials have 
pressed the International Monetary Fund to provide bigger and 
bigger loans to the Russian Government. But witnesses before 
this Committee, public commentators, and events in Russia 
itself have shown that providing more loans only leads to the 
need to provide more loans later on.
    Huge amounts of money have flooded out of Russia and are 
being laundered in non-Russian banks, including American banks, 
and yet nothing truly meaningful has been done to halt this 
flood.
    If they weren't themselves stolen, IMF moneys have only 
replaced in part the moneys that have been stolen from Russian 
industry and from the Russian government. Meanwhile, the 
Russian economy sinks deeper into a morass while our top 
officials call for patience and point to few successes.
    It is hard to ignore the dismal characteristics of life for 
many Russians today: life-threatening poverty, contagious 
diseases, a rising mortality rate, the theft of government 
pensions and salaries, renewed anti-Semitism and a possible new 
fascism on the horizon. It is hard to see how Russia will gain 
the stability we want for it if these circumstances continue to 
prevail.
    In foreign policy, Russian officials tell us one thing and 
do the other, whether it involves a new Russian military 
operation in the region of Chechnya, Russia's recent surprise 
deployment of peacekeeping troops in Kosovo, or what appears to 
be continued Russian proliferation of weapons technology to 
Iran.
    Our Committee on International Relations today will begin a 
new review of our Nation's policy toward Russia and how it has 
been implemented over the last few years. Today, we will be 
reviewing warnings that may have been ignored or disregarded 
over the past few years, warnings that have come from within 
executive branch agencies as well as from outside. Today's 
hearing will be followed by a hearing tomorrow morning during 
which our Committee will gauge the extent of corruption within 
the Yeltsin government.
    That hearing will be followed by a closed briefing for the 
Committee next week by the Director of Central Intelligence, 
who will discuss the Intelligence Community's record of 
analysis and reporting on corruption in Russia.
    Our Committee has also extended an invitation, almost 3 
weeks ago, to Secretary of State Madeleine Albright or Deputy 
Secretary Strobe Talbott to appear before the Committee on the 
issues of our policy toward Russia and corruption in Russia. We 
expect to receive a positive response to that invitation within 
the next few days.
    Finally, there have been a number of troubling articles and 
allegations regarding the Administration's willingness to 
disregard alleged Russian malfeasance. There are questions 
about the State Department's handling of an alleged assault on 
a U.S. Naval officer who believes that he was blinded by a 
laser device while observing a Russian cargo ship near our 
shores.
    In 1996 American businessman Paul Tatum was murdered in 
Russia, and his family members have expressed their concern 
that a proper investigation of that murder may never have been 
carried out due to the possible impact on our relationship with 
Russia.
    There are stories going back to 1995 alleging that an 
intelligence program was closed down after questioning the 
extent of Russia's control over its nuclear materials.
    Finally, there are questioned about the removal of AID 
officials who openly questioned events in Russia and the 
character of President Yeltsin. At this point, I ask unanimous 
consent to insert in the record statements submitted by 
Lieutenant Jack Daly, U.S. Navy, and Ambassador Richard 
Armitage, former coordinator of assistance to Russia with 
regard to two of these incidents.
    Chairman Gilman. Before I recognize our Ranking Member, Mr. 
Gejdenson, for any opening remarks he would like to make, I 
would like to briefly introduce our witnesses. Our first panel 
consists of two witnesses with experience in the policymaking 
and analysis that underlies our policy toward Russia.
    Ambassador David Swartz is retired from our U.S. Foreign 
Service, having served in the region of the former Soviet 
Union. His last post in that region was as our first Ambassador 
to Belarus. We welcome you, Ambassador Swartz.
    Mr. Fritz Ermarth is retired from our Central Intelligence 
Agency where he worked on intelligence analysis matters. Mr. 
Ermarth has also served on our National Security Council staff.
    Our second panel includes Mr. Mike Waller, Vice President 
of the American Foreign Policy Council, who has written 
extensively on U.S.-Russian relations and our policy toward 
Russia, as has Mr. Kenneth Timmerman, who is Contributing 
Editor to Reader's Digest. They will be joined by Mr. Martin 
Cannon, a member of the Board of Directors of the U.S.-Russia 
Business Council and the Managing Director of CIS Operations 
for the firm of A.T. Kearney.
    I now recognize Mr. Gejdenson, our Ranking Minority Member, 
for any opening remarks that he would like to make. Mr. 
Gejdenson.
    Mr. Gejdenson. Thank you, Mr. Chairman.
    Anybody who thought there was going to be a smooth 
transition from 50 years of totalitarian rule in Russia to an 
open and free democracy must have never read or observed any 
history at all. But we have made some progress, and while there 
is a tendency in the Congress to almost nostalgically go from 
Port-au-Prince to Moscow, reciting the lower crime statistics 
and quieter days under dictatorship, the reality is that we 
have had some stunning successes.
    There is no question that the law governing business, the 
financial irregularities, and even democratic institutions are 
far from perfect in Russia. But when I look at the situation, I 
frankly think that the Clinton Administration took a policy 
that was basically without form and gave it some form and made 
some progress.
    If we take a look at what has happened, we have deactivated 
1,500 nuclear warheads. When you compare that to the enormous 
and proper response in this Congress to one missile from North 
Korea where there is no evidence of a nuclear warhead at this 
point, and we hope there never will be, and the destruction of 
300 missiles, we have made progress. Nuclear weapons are 
currently not targeted at American cities. We have 
denuclearized the Ukraine, Kazakhstan and Belarus. The Russians 
have withdrawn their troops from the Baltic States, they joined 
our peacekeeping mission in Bosnia in 1995, and they joined our 
peacekeeping mission in Kosovo in 1999.
    We have a lot of bumps in the road with the Russians. We 
have bumps in the road with our allies, the French, British, 
and Israelis at almost every corner. These are countries that 
have had democratic institutions for decades. We need to do a 
better job of managing the programs that go into Russia, 
without any question. We have to demand tougher accounting, 
better collection of taxes, better enforcement of laws. Do we 
want to see less crime and less organized crime in Russia? I 
think we would have the same hope for this country. Are there 
businessmen who are killed and women killed on the streets of 
the United States? Yes. Is there more crime in Russia now that 
there is no longer a totalitarian government? Absolutely, yes.
    The process of building a democracy in Russia will be a 
difficult challenge. Unlike most of the Eastern Bloc, there is 
no precedence for a civil, democratic and free economy in 
Russia. There is no history. They went from the medieval days 
of the czars to the Communist revolution, and they have lived 
under totalitarianism for 50 years.
    At the end of World War II, the United States tried many of 
the same things. We tried a Marshall Plan that in today's 
dollars would be $90 billion, and we tried everything we could, 
from hiring Nazi scientists who had just finished trying to 
exterminate the Free World, and we put them under our contract 
because we didn't want them to go elsewhere. I have witnessed 
in this Congress an assault on Nunn-Lugar funds which are used 
to get rid of nuclear weapons and fissionable material that is 
a danger to American national security.
    It sometimes seems to me there is a nostalgia: Gee, if we 
only had this dictatorship that we knew how to confront, rather 
than the unsure future of dealing with a country trying to 
become democratic. Nobody in his right mind would nominate 
President Yeltsin for head of the League of Women Voters. 
Frankly, I wouldn't nominate some of the Senators and House 
Members we have here, when we look at what we have done for 
campaign finance reform, for the President of the League of 
Women Voters either. But we are going to have legislative 
elections in Russia, we are going to have a free Presidential 
election in Russia. Perfect?
    Even some of our elections are not perfect. But let me tell 
you something, there is not a Member of this Congress or I hope 
anybody in this country that would prefer the stable, 
Politburo-run country that used to exist in Russia to the 
turmoil we are facing today. We ought to focus these hearings 
on the financial institutions, the International Monetary Fund, 
and other organizations. What happens to the money? The same 
problems that happen in every poor country with bad laws. 
Capital flight, undermining the economy, places a terrible 
burden on average citizens as wealthy individuals are freed 
from inflation and the ups and downs of the economy by taking 
their money out of the country.
    Let's work together to embolden our policy in dealing with 
Russia; let us work together to make sure it works. Let us not 
argue, as some have, that we ought to stop meddling, that we 
ought to somehow hope that it is all going to get better 
without our help.
    If we had left Europe alone, it would have been in a much 
worse situation. If the United States disengages from Russia, 
it will create a disaster, and we will face in a decade either 
a left-wing or a right-wing totalitarian government again. 
There is no guarantee in what we do that there will be success; 
but there has definitely been proven success when you look at 
warheads, when you look at missiles, when you look at 
denuclearized states, when you look at the progress of free 
economic competition. Not perfect, but it is not perfect 
anywhere, and they have a lot further to go.
    Thank you for holding this hearing, Mr. Chairman.
    Chairman Gilman. Mr. Leach.
    Mr. Leach. Thank you, Mr. Chairman.
    There is a lot of truth in both the opening statement and 
the statement of the Ranking Member, but the big picture is 
that for all of the pluses and some of the positives occurring 
in Russia, Russia is also going backward and is subject to 
forces that appear to be beyond the control of the American 
people. Instead of the United States responding with a Marshall 
Plan, it is clear the institutions of the West have helped 
facilitate the marshalling of the wealth of Russia for it to be 
recycled to the West as stolen social assets.
    This country has no choice but to be very, very much 
alarmed and very much supportive of the Russian people against 
the new institutions of wealth-stealing that have developed. 
Today is a signal day in that three exceptionally minor 
indictments have been brought in New York, but they are minor 
indictments with major implications. The crimes that are 
suggested in our scope are rather small, but it can begin to 
lead to the unwinding of our greater crimes that are involved 
in the accumulation of the money that has been laundered in 
contrast with the money laundering itself.
    In any regard, my own view is that if things are going 
askew in our relations with Russia, there is some degree of 
accountability within the executive branch, lack of vigilance 
perhaps in all branches of the U.S. Government. But the issue 
is not so much finger-pointing, but what we do to correct the 
situation and how we look to the future. In that regard, I 
think that the bottom line of this Congress should be concern 
for the Russian people, concern for the rule of law, and to try 
to develop a system of accountability in Russia that is based 
upon help that we can provide in insisting that our laws are 
upheld and the kind of corruption we see there is not brought 
to our shores.
    In any regard, this hearing that the Chairman is bringing 
forth is very timely and much appreciated.
    Chairman Gilman. Thank you, Mr. Leach.
    Chairman Gilman. Mr. Lantos.
    Mr. Lantos. Thank you, Mr. Chairman. I want to commend you 
for holding this hearing. I would like to commend my good 
friend from Iowa, who is conducting important hearings on the 
Russian banking system with his customary integrity and 
objectivity.
    I would like to take a bit of an historic view of where 
Russia is in 1999.
    I first made my visit to the Soviet Union in the summer of 
1956, Mr. Chairman, and my last visit to Russia was last month, 
in September. I must say that while I certainly see probably as 
many problems as difficulties in Russia, as any of us in 
Congress and any of our witnesses, I also believe it is 
absolutely critical to put Russia in 1999 in some kind of 
historic perspective.
    Russia is still enjoying a free press. Russia is looking 
forward to free and democratic elections for the Duma in a few 
months, and to a free Presidential election next year. Every 
Russian has a passport. Russians are eager for American 
investment, for American tourism, and the dialogue between 
American academic institutions and Russian academic 
institutions, between our Library of Congress and their 
libraries, are full and fruitful and flourishing.
    Since I suspect these hearings have somewhat of a partisan 
angle, as your opening remarks clearly indicated, let me remind 
you, Mr. Chairman, that the historic change in the Soviet Union 
came in the period 1989 through 1991. The dramatic opportunity 
the West had in that period took place during an earlier 
Administration, if I am not mistaken, the Bush Administration. 
So if we are to explore seriously what has gone wrong in 
Russia, it is extremely important to realize who was in charge 
when the cataclysmic changes in the Soviet Union unfolded. It 
was not this Administration.
    Let me also say that it was one of the tragedies of the 
West that there were no great political giants in power in any 
of the western countries at the time of this historic moment. 
There was no Adenauer, no Jean Monet, no Churchill, no Paul 
Anrespok, no Archita deGustery. The great leaders at the end of 
the Second World War in the West created a framework and we 
played the pivotal role in that framework, the Marshall Plan, 
NATO. One would have hoped that when the Third World War of 
this century ended, which we label the Cold War, there would be 
equally farsighted vision and creativity and courage on the 
part of western leadership to deal with this historically 
incredible new opportunity.
    That, clearly, did not happen. The responses were timid, 
half-hearted, puny, and unimpressive.
    The Russians had high expectations of working with us 
closely. When we had a bipartisan leadership delegation go to 
Moscow, as you may recall, 2 weeks after Yeltsin and President 
Clinton had their first meeting in Vancouver, British Columbia, 
we were greeted with tremendous enthusiasm and great 
expectations. Every subsequent visit was greeted with much less 
enthusiasm, much less excitement, and much lower levels of 
expectation.
    Nevertheless, the Russians have cooperated with us and are 
cooperating with us in Bosnia; they have been pivotal in 
bringing to a close the Kosovo military engagement, and our 
relations with them are far better than anyone had any right to 
expect in the fall of 1999. I had a long session with the 
Foreign Minister of Russia, Mr. Ivanov, less than a month ago, 
and there is no doubt in my mind that the Russians are still 
hoping of building a constructive, cooperative and useful 
relationship.
    Now, I also would like to make one final point if I may, 
Mr. Chairman. You were highly critical of our government's 
treatment of Boris Yeltsin. Allow me to remind you that there 
are many Boris Yeltsins. The first Boris Yeltsin that we got to 
know was the man who was the first democratically elected 
President of Russia in 1,000 years. Well, it is not 
unreasonable that we dealt with him. It is not unreasonable 
that the Government of the United States established as best it 
could relations with the first democratically elected President 
of Russia. It is not unreasonable that Vice President Gore was 
designated as our point man with the Prime Minister of Russia, 
Mr. Chrnomyrdin for a period of 5 years to work on a horrendous 
range of issues. You should read, Mr. Chairman, if you haven't 
yet, the agendas of the Gore-Chrnomyrdin Commission and the 
very constructive and positive and many-splendored results of 
the Gore-Chrnomyrdin Commission.
    Now, it is obvious that Yeltsin has undergone a major 
change mentally, physically, and in many other ways during the 
course of the last few years, but it is still important to 
realize that our alternatives were the lunatic fascist 
Zhirinovsky or the equally evil Communist leader Girgonov, or 
perhaps the would-be military dictator Lebed. So I think it is 
important to realize that when we are so highly critical of 
having dealt with Yeltsin and his government, our alternatives 
were not Mother Teresa. Our alternatives were singularly less 
desirable counterparts who, by the way, were not elected 
President of Russia.
    I look forward with great pleasure to hearing our 
witnesses, both today and tomorrow, but I think it is important 
if we are to make good use of these hearings that we shy away 
from partisan political denunciations of this Administration, 
because the new Russia unfolded under the Bush and Clinton 
Administrations and the great historic moment was in 1989-1991, 
not in 1999. Not in 1999.
    Second, we take a balanced view of the achievements and of 
the failures that our governments under the Republican and the 
Democratic Administrations may have committed. Thank you, Mr. 
Chairman.
    Chairman Gilman. Thank you, Mr. Lantos.
    Does any other Member seek recognition? If not, we will get 
on with the panelists.
    Ambassador David Swartz entered the Foreign Service in 
1967, and during his career with the State Department, he 
served in our American embassy in Moscow in the early 1970's, 
in the consular office that predated our current Embassy in 
Kiev, Ukraine established in the late 1970's, and as Deputy 
Chief of Mission in Warsaw from 1984 to 1988. Ambassador Swartz 
was our first Ambassador to the newly independent state of 
Belarus from 1992 to 1994, a vantage point from which he was 
able to closely view our policy toward the entire former Soviet 
Union and its largest successor state, Russia. Ambassador 
Swartz retired in 1995 and has most recently served as a 
Visiting Professor at Lawrence University in Wisconsin.
    Chairman Gilman. Ambassador Swartz, you may summarize your 
written statement, which, without objection, will be inserted 
in full in the record. Please proceed.

  STATEMENTS OF DAVID SWARTZ, U .S. FOREIGN SERVICE, RETIRED, 
               FORMER U.S. AMBASSADOR TO BELARUS

    Mr. Swartz. Thank you, Mr. Chairman. I am grateful for the 
opportunity to be with you today and I appreciate you having 
invited me to come along and appear this morning. As you 
pointed out, I did provide a written statement, and I now 
propose to spend just a few moments summarizing the main points 
of that statement, if I might.
    Certainly I believe that all of us who consider ourselves 
Sovietologists or experts or specialists in the field of the 
Soviet Union and the post-Soviet Eurasia were caught off guard, 
to be frank, by the events beginning in the late 1980's and 
culminating with the end of the Soviet Union in December 1991. 
I think that is an important point that needs to be 
highlighted. I think myself, as a career Foreign Service 
Officer, a retired career Foreign Service Officer, that things 
got underway quite effectively from a policy point of view. 
From a specific concrete action point of view in the first 
post-Soviet months which, in fact, was the last year of the 
Bush Administration--certainly a consideration of the subject 
that we are looking at today, which is basically 
retrospective--must look also at the performance of the Bush 
Administration, as has been correctly pointed out already.
    I would submit to you that already before December 1991, 
Administration figures under President Bush clearly understood, 
as did the President himself, and were responding to 
centrifugal forces that were already well at play before the 
demise of the Soviet Union. I would submit that there was a 
strong degree of bipartisanship that reflected American foreign 
policy toward that region in those days and months.
    In particular, I would cite the Freedom Support Act that 
was, I think if not a model of bipartisanship, certainly a 
strong demonstration of it in 1992, which set the framework for 
a concerted effort and assistance that was intended, of course, 
to have significant political as well as humanitarian and 
economic benefits.
    The Bush Administration strove, even before the Freedom 
Support Act was conceptualized and enacted by Congress, to 
embark on a significant program of immediate humanitarian 
assistance. Ambassador Armitage no doubt has or will speak 
about that subject, with a view toward getting the peoples of 
the region through the crisis of those months and days.
    A critical point I think about the Bush Administration at 
that time was that it immediately established new embassies in 
all of the countries of the former Soviet Union, so that by 
February 1992, scant weeks after the Soviet Union ceased to 
exist, we had operating embassies in all of these places. I 
have personal experience in that regard, of course.
    I believe that the final year of the Bush Administration 
saw a strong understanding of the challenges, let's say, that 
the post-Gorbachev leadership was going to pose for American 
policymakers. Gorbachev was someone we had dealt with and 
understood and had effective relations with, but Gorbachev was 
no longer there. Yeltsin was a different kettle of fish, as has 
been cited already in various statements. I believe the Bush 
Administration understood those nuances. It managed to, I 
believe, successfully conceptualize a reform strategy intended 
to lead toward democratization and market economics in the 
former Soviet space, not just in Russia itself, but elsewhere. 
Perhaps most crucial for American interests, the Bush 
Administration immediately seized upon the issue of 
centralization of nuclear weapons and denuclearizing in the 
circumstances surrounding the end of the Soviet Union. That 
program was begun in that last year of the Bush Administration. 
It did not come to full fruition until later, but it was begun 
during that period, and I think it is impossible for us to 
ignore these facts which are, of course, on the record.
    Now, the question is, what would have happened had the Bush 
Administration continued in office? I am not prepared to sit 
here and assert for you--and I am not a politician anyway, but 
even if I were--I would not be sitting here and asserting to 
you that the Bush Administration would have had great huge 
successes in its post-Soviet Russia policy in contrast to what 
we might say are failings of the current Administration's 
policies in that region. Maybe that would have been the case, 
maybe it wouldn't have been. But since the question is moot, I 
don't really think that we can address it and don't need to.
    Now, turning to the first year of the Clinton 
Administration, which was my last year in service in Belarus, I 
would say that even allowing for a traditional settling-in 
period for a new Administration, things got off to a pretty 
confusing start. That was kind of odd, I thought, in view of 
the fact that the incoming Clinton Administration claimed to 
have someone with enormous and deep Soviet expertise leading 
the policy team. From my vantage point as a holdover Ambassador 
in those first months and with lengthy experience in the 
region, I felt that the new Administration was too willing to 
take at face value punitive reformists and white head sorts of 
credentials of Yeltsin himself and people around him.
    Chairman Gilman. I am sorry to interrupt, Mr. Ambassador. 
We will continue right through the hearing. I have asked some 
of our Members to go over and come back to conduct the hearing 
while we are voting. So if any of the Members wish to go over 
and vote and come right back, we will continue with the hearing 
without interruption.
    Please continue.
    Mr. Swartz. Thank you, Mr. Chairman.
    I felt that the new Administration was unnecessarily 
russocentric in its approach to the region, giving rise in 
Moscow, in my opinion, to the impression that the United States 
would not oppose and might even support reimposition of Soviet-
style hegemony, which I felt then and feel now was contrary to 
American interests. I felt that the new Administration did not 
make sufficient internal executive branch linkages between 
strategic policy and tactical policy implementation, 
specifically in the technical and economic assistance areas.
    I found the Administration taking some astonishingly naive 
actions; in particular, an event in Belarus involving President 
Clinton during his visit there which had, in my opinion, the 
exact opposite effect that was intended by holding the event.I 
believe that the new Administration seemed not to understand 
that societal transformation is a very long, arduous 
proposition and to act accordingly.
    The sum total of all of this, in my view, was a creation of 
a climate in Moscow of political and economic promiscuity, 
where the impression reigned of a high U.S. tolerance level for 
these activities across a broad spectrum of the unofficial and 
official Russian community.
    On frequent occasions when I was Ambassador in Belarus, I 
spoke out in written communications with high-level figures in 
the State Department and the National Security Council staff in 
Washington on these matters and others, and typically got 
nowhere with them; which is, perhaps, not unusual for 
Ambassadors in the field, but it was a new experience for me. 
The most vociferous policy disputes that I particularly was 
engaged in had to do with assistance matters: Food deliveries 
where they weren't needed, no support for private higher 
education where it was needed, too little transformational 
assistance in general, leading the local populace frequently to 
ask, as they still do, ``Where is the beef?'' Eventually I 
decided to resign my post over these policy disputes, so it 
will come as no surprise to the Committee that I express the 
views that I already have expressed.
    With that, I would like to thank the Chairman for this 
opportunity.
    Chairman Gilman. Thank you, Mr. Ambassador.
    Chairman Gilman. Before I proceed, I would like to submit 
for the record a statement by our distinguished Subcommittee 
Chairman, Mr. Royce, with regard to U.S. policy toward Russia. 
Without objection, we will make it a part of the record.
    Chairman Gilman. We are pleased to have with us 
Congresswoman Marcy Kaptur of Ohio, a Member of the 
Appropriations Committee and a Ranking Member on the 
Agriculture Subcommittee who wants to submit a statement. Ms. 
Kaptur.
    Ms. Kaptur. Thank you very much for allowing me to sit with 
your Committee. I will submit for the record a statement that 
details the $1 billion shipment of food aid to Russia during 
this fiscal year and raises some concerns regarding its 
accounting, as well as the Administration's disconnected 
approach to handling this food aid shipment relative to other 
foreign policy goals. We would just ask the Committee, and 
thank them very much, for including this in the record.
    I noted in the summaries that have been provided the word 
agriculture is not really mentioned. In this fiscal year alone, 
we will provide more in food aid to Russia than we do in all of 
the other foreign assistance programs. I thank you for allowing 
me to sit in.
    Chairman Gilman. Thank you for bringing this to our 
attention. Your statement will be made part of the record, 
without objection.
    Chairman Gilman. We will continue with our hearing.
    Now I would like to call our second panelist, Mr. Fritz 
Ermarth. Mr. Ermarth retired from the Central Intelligence 
Agency in 1998. During a career of more than 30 years, Mr. 
Ermarth served as a Soviet Affairs Analyst at Radio Free Europe 
and the RAND Corporation, as well as with the CIA. Mr. Ermarth 
has served as Special Assistant to the Director of Central 
Intelligence, the National Intelligence Officer for the Soviet 
Union and East Europe, and Chairman of the National 
Intelligence Council. He has also served twice on the National 
Security Council staff under Presidents Carter and Reagan, and 
recently, Mr. Ermarth has written on the problem of corruption 
in Russia and its impact on U.S. policy toward that nation in 
both the ``New York Times'' and the ``National Interest.''
    Mr. Ermarth, you may summarize your written statement 
which, without objection, will be inserted in the record. You 
may proceed.

 STATEMENT OF FRITZ ERMARTH, U.S. CENTRAL INTELLIGENCE AGENCY, 
    RETIRED, FORMER MEMBER, NATIONAL SECURITY COUNCIL STAFF

    Mr. Ermarth. Thank you, Mr. Chairman. I am deeply grateful 
to you and to the Committee for this opportunity to testify on 
your very important agenda. As the previous speaker, I will 
just offer some brief summarizing remarks, with apologies to 
Representative Leach who has heard some of them before during 
the hearings that he chaired, and to the Chairman whose opening 
remarks indicate he is way ahead of the power curve on much of 
what we are discussing.
    First, it is extremely important to realize, as several 
speakers have already emphasized, that the roots of the crime 
and corruption problem that have brought us here today in 
Russia go back into the Soviet past, as do many of the problems 
of Russia today, like the environmental crisis, the public 
health crisis, the decay of infrastructure. It is particularly 
important with respect to the lack of the rule of law. We have 
to understand that the plundering and laundering, the organized 
crime and the authorized crime that dominate the Russian 
economy today have their origins in the activities of the KGB 
and the Communist leadership in the late 1980's, not under the 
Yeltsin regime, although they escalated under Yeltsin.
    The second big point is that what we call economic reform 
in Russia has really not created a market economy or 
capitalism, that most hoped for. Rather, it created a kind of 
crony capitalism without much capitalism, or I would call it 
phony crony capitalism where insider privatization, in alliance 
with corrupt officialdom, has produced a system dominated by a 
few powerful individuals or entities who strip wealth out of 
the country and send it abroad rather than investing to create 
wealth and prosperity at home. The result has been 
impoverishment for the people and profound instability of a 
political and social system which we should all recognize poses 
serious dangers for our most important security interests in 
Russia, particularly nuclear stability and security.
    Now, organized crime interacts with these phenomena with 
this plundering system, both as a beneficiary and a 
facilitator, through such activities as protection racketeering 
and money laundering.
    These realities that I have tried very briefly to summarize 
have been completely visible from the start, and aptly reported 
by a host of Russian and western observers in the English 
language for that matter. You didn't have to read Russian to 
follow this saga. No failings of American intelligence can be 
blamed for a failure to see these realities. There were, 
however, some failings of American intelligence which, in my 
view, deserve some analysis and correction.
    Mr. Chairman, your staff asked me to spend a few minutes on 
this topic of intelligence, and I will briefly summarize my 
view, especially in the early to mid-1980's.
    Chairman Gilman. I am sorry to interrupt, Mr. Ermarth. I am 
going to turn the Chair over to our Vice Chairman, Mr. 
Bereuter, while we go to vote. Please continue.
    Mr. Ermarth. Thank you, Mr. Chairman.
    On the subject of U.S. Intelligence in this area, I did see 
some difficulties in the early to mid-1990's, in particular, in 
developing a fully integrated big picture of what was going on 
in Russia's troubled forums. First, as has been noted in some 
press and referred to in an article that I published to which 
the Chairman alluded, there was some political distaste in the 
top ranks of the current administration for reporting an 
analysis about corruption in the Yeltsin regime. Second, a 
reduced work force, preoccupation with current intelligence, 
and preoccupation with current support requirements limited the 
efforts of intelligence analysts to get a deep, big-picture 
view of Russian reforms. There was bureaucratic 
compartmentalization. People wanted to look at different 
aspects of this elephant and not bring the pieces together.
    Finally, economic analysis didn't adequately appreciate the 
impact of crime and corruption on Russian reforms, taking the 
view that while their robber barons are like our robber barons 
and they will all go legitimate in the end, not recognizing 
that the absence of the rule of law made it impossible or 
extremely difficult to impose the discipline of fair market 
practices that we imposed on our robber barons, things like 
that.
    Now, some of my former colleagues think I am unfairly 
critical about our intelligence record here, because I may not 
have seen everything that was going on. Other colleagues, on 
the other hand, who were very much in the thick of it, don't 
believe I am critical enough. But let me repeat my basic point. 
You did not need official intelligence to see the toxic mixture 
of corruption, insider business, organized crime and capital 
flight that undermined Russian reforms and the effectiveness of 
our support. They were entirely visible in the Russian press, 
even in English, and any attentive observer could see them.
    The historic failing of American policy in this period was 
that it gave support too uncritically and for too long to this 
phony crony capitalism in Russia. It did so rhetorically, 
politically, and financially, chiefly through the IMF. The 
result has been the prospects for true economic reform in 
Russia have been made, in many ways, more difficult than they 
were initially. Worst of all, we have lost much respect and 
admiration among the Russian people, as have the very ideas of 
capitalism and democracy.
    Now, this in no way ignores what has been achieved under 
such programs as Nunn-Lugar, but as I have already said, the 
failures of Russian reforms very much endanger those 
achievements.
    The problem with the IMF has been more one of perversion, I 
would say, than diversion of funds. Rather than encouraging the 
stabilization and growth of the Russian economy, the IMF has 
served to legitimize the extraction and the flight of wealth, 
of capital. But there does, in fact, seem to have been 
something like diversion in the summer of 1998, and I would be 
happy to summarize the evidence, if the Committee is 
interested, in response to questions.
    Why the Administration pursued the policies it did for so 
long in the face of these realities is still not entirely clear 
because I find its belated explanations not terribly 
persuasive, particularly the reference to our security 
interests. While we have achieved things during the course of 
the 1990's, positive things, I believe our security relations 
with Russia are in worse shape today than they were in 1992, 
1993 when we enjoyed great admiration of the Russian people.
    The influx of vast sums of Russian money into our economy 
during this period, probably amounting to hundreds of billions 
of dollars, poses serious questions for law enforcement and 
regulation, which is one of the reasons we are here, to witness 
the indictments of yesterday. Whether that money was stolen by 
crime or by corrupt business, laundered or just deposited, it 
inevitably created American stakeholders in the process that 
brought it here. Whether such stakeholding exerted an influence 
on U.S. policy that embedded the process is a valid question 
that this Congress should address.
    Finally, let me make a point that very much agrees with 
that of the Ranking Minority Member. Russia is not lost but 
stuck in a swamp between the Soviet past and alternative future 
possibilities that range from bright and friendly to dismal and 
threatening. Our task is to assay the past, reassess our 
policies, and get ready for the possibility that a window of 
real reform in Russia will reopen if--and I underscore if--they 
get through the impending elections. I wish I and, for that 
matter, Russians could be as confident as the Ranking Minority 
Member is that they will, in fact, hold those elections. In 
fact, Russia is in a profound crisis, a two-headed one 
involving electoral politics on the one hand and the crisis in 
Chechnya on the other.
    There are better paths available to the Russians and to our 
own policy toward Russia. If this Committee can illuminate 
those paths, both Russia and America will be grateful. Thank 
you, Mr. Chairman.
    Mr. Bereuter. [Presiding.] Ambassador Swartz, Mr. Ermarth, 
thank you very much for your testimony.
    Mr. Bereuter. We will begin questioning under the 
Committee's 5-minute rule.
    I would begin by saying I am interested in knowing your 
opinions as to how we modify our current policy, which is not 
successful with respect to Russia. I am not interested, 
frankly, in a partisan discussion about who is responsible for 
what in the Bush or Clinton Administrations as I am in 
understanding what we ought to do now with the situation that 
is obviously not good.
    If you were to be given an eight by four block of granite 
and you were to know that your advice to us would have to be 
chiseled on that block, what principles should underlie our 
policy with respect to Russia now to give us a positive 
Russian-American relationship and serve our national interests? 
Ambassador Swartz, do you want to try first?
    Mr. Swartz. I think the most important principle that would 
be chiseled on that block of granite is pursuit of our national 
interests, and that might sound like a cheap shot, it is not 
intended to be. Really, everything that we should be doing in 
our diplomatic relations with anybody is pursuit of U.S. 
national interests.
    Mr. Bereuter.  That should be on a banner in the back of 
the room here: What are our national interests? That question 
ought to be facing Members of this Committee every day. I 
understand that is where we start.
    Mr. Swartz. As far as Russia is concerned, I believe the 
period of deep crisis that was alluded to a moment ago is 
certainly a characterization that I would agree with. I would 
suggest also that our relations are in something of a holding 
pattern now because we do have impending elections to the Duma, 
and we do have impending Presidential elections. Really, the 
outcome of those contests will, to a large extent, be 
determinant as to what our policies are going to be with regard 
to Russia.
    Mr. Bereuter.  Ambassador, remember that block of granite. 
I am looking for those principles.
    Mr. Swartz. Again, the principles should be following 
pursuit of our national interests, should be encouraging 
whoever those leaders are to establish as swiftly and as 
comprehensively as possible rule of law in civil society; to 
move us as swiftly as possible to achieve an appropriate nexus 
between private capital and government in terms of how business 
operates, regulation, tax collection and so on. These are the 
things that we should be fostering.
    You can say well, we have perhaps have been fostering 
those, but without wanting to be too retrospective, I think 
more needs to be done.
    See who wins the elections, pursue our national interests 
in terms of those critical elements, and then of course in the 
Third World, the broader world, do things that we need to do to 
encourage the Russians to stop providing nuclear technology 
where it is being provided and to do other things that are 
consonant with our own national interests, and to challenge 
them when they don't.
    Mr. Bereuter.  Thank you, Ambassador.
    Mr. Ermarth, the Ambassador had to go first, so you had a 
whole 2 or 3 minutes to think about it.
    Mr. Ermarth. Yes, sir, Mr. Chairman. I would put some 
things, some of the same things on that block. First, we have 
to start with a thorough audit of our policy. Now, these 
hearings constitute such an audit, but there are a lot of 
things down in the weeds--details. For example, in Nunn-Lugar, 
we have achieved a lot, but a lot of money has been spent and 
there needs to be a thorough investigation of where exactly it 
was spent and how. The IMF Program obviously needs to be gone 
over very thoroughly.
    Second, we need to assure that in the future, we have full 
honesty, transparency, and accountability, on our side as well 
as theirs. I mean, a great deal of the problem over the last 6 
or 7 years is that we refused to be honest with any of the 
essential constituencies about what was obviously going on over 
there.
    Third, we need attention to all elements of the political 
spectrum that have influence in Russia, especially in the 
political arena. Congressman Weldon has emphasized the 
importance of paying attention to the Duma. I think that is a 
very wise consequence of the general principle. We shouldn't 
restrict our policy connectivity to Russia to a few cozy 
relationships among people who speak English and IMF-ise.
    Fourth, most of the assistance ought to be targeted in a 
very practical, grassroots way, and that includes things like 
building civil society and rule of law.
    Mr. Bereuter.  Thank you very much.
    The gentleman from Connecticut, the Ranking Member, is 
recognized for 5 minutes.
    Mr. Gejdenson. Thank you.
    It seems to me that what you outlined, both of you, 
although it be a big chunk of granite and there is a lot to do 
here, is exactly what all of our bilateral relationships are 
aimed at doing--the Gore-Chrnomyrdin and the followup. The 
agendas are designed to try to get the Russians, who have no 
private property, no due process, no review systems in place of 
any serious nature, to evolve into a free and open society. So 
I think frankly we don't have a big debate here.
    The auditing--I think every Member on this Committee wants 
to follow every penny that American taxpayers pay to make sure 
we are getting the maximum return on it.
    I guess what I am saying is, so that we can highlight this, 
let's assume I have seen one report that says that the IMF did 
an audit and that they know where their money went and where it 
wasn't supposed to have gone. Some people claim it is IMF 
money, but I have seen no evidence of that. Some people claim 
it is other Russian money in flight and illegal moneys that 
violate Russian laws. I don't think there is anybody in this 
town from Pennsylvania Avenue to Capitol Hill or anywhere else 
who wants to see our money misused or not spent for what it is 
supposed to be spent. So we all agree on that and we would like 
to see those audits.
    What in the programmatic sense ought we add or take away 
from what we are doing? It seems to me that I think we all 
basically agree we have to engage the Russians, we have to get 
them to do the basic hard work of government. We have to have 
ethics in government, we have to have oversight, we have to 
have transparency, economic transactions. We want to make sure 
that when we deal with issues like nuclear proliferation, there 
isn't somebody selling nuclear material out the back door. This 
is even tougher in societies in chaos.
    I remember being briefed by the people who run the 
Ukrainian nuclear power plants, that they hadn't paid some of 
their workers for 6 months at one point. When you are not 
paying your workers for 6 months, you know what they are doing; 
they are stealing something out the back door or they are not 
the most dedicated workers at that point. Obviously, you have 
big problems. What would you add or take away from what we are 
doing today? You can do it in pencil or granite, whatever your 
choice is.
    Mr. Swartz. My answer to that is that the devil is in the 
details, and the details I think haven't been paid sufficient 
attention.
    I am a strong advocate of small concrete actions, baby 
steps, if you will. Let us do this in this town, let's do that 
in that town, let's do this project that will have this result. 
Not only will this achieve greater accountability and results, 
I would submit, but also individual Russians who, after all, 
are the ones who are going to be voting for these people that 
we talked about a minute ago, will be able to see what America 
is doing in their town, in their factory, in their whatever.
    Mr. Gejdenson. I think we have general agreement, even 
within the Administration as well, they are moving things back 
into the provinces. I think Eximbank, frankly, is a better way 
to go from my position than the IMF. You have a specific 
project, you do something, it is concrete, you can follow the 
dollars. I think we have a real international monetary problem, 
and I hope the Chairman of the Banking Committee will figure 
out how to deal with it; but I think you are right, specific 
projects.
    Mr. Ermarth. I would endorse the specific projects 
business, but I would also stress we have to put our action 
programs, our money, as it were, behind what we say. We have 
talked about law and order, building a civic society, but we 
have behaved in ways, for example, supporting the IMF funding, 
that suggested we didn't really mean it.
    Mr. Gejdenson. Let me ask you this: What would you have 
changed on the IMF funding?
    Mr. Ermarth. Starting most recently, I would have, in the 
summer of 1998 said, this GKO pyramid or casino you have going 
over here is thoroughly responsible. It should have been shut 
down a year ago; let's shut it down now.
    Mr. Gejdenson. Explain that to me again.
    Mr. Ermarth. I mean, working back in time----
    Mr. Gejdenson. Right. The most recent one you have no 
complaint with.
    Mr. Ermarth. Which?
    Mr. Gejdenson. The refinancing tranche that stays----
    Mr. Ermarth. To avoid default.
    Mr. Gejdenson. To avoid default, you won't disagree with 
that.
    Mr. Ermarth. Yes, I certainly do.
    Mr. Gejdenson. So you would allow them to default?
    Mr. Ermarth. I am not sure which is the best way to go 
right now, politically or economically.
    Mr. Gejdenson. So you are unsure about default, and now we 
go back to the previous tranche of funds.
    Mr. Ermarth. We shouldn't have lent the money on the terms 
that we did in the summer of 1998.
    Mr. Gejdenson. What would you have added for conditions?
    Mr. Ermarth. Shutting down the GKO market on some soft 
landing strategy.
    Mr. Gejdenson. What would that soft landing strategy be?
    Mr. Ermarth. I am just not able to sit here and create one. 
But I think we have a whole history of buying into policies on 
the part of the Russian regime that were thoroughly flawed, and 
we could see those flaws emerging, and we should have said so.
    Mr. Gejdenson. I think lots of people said so. I think that 
trying to get the particulars to go from their system to our 
system is a pretty rough road. Again, if you can't do it today, 
I would appreciate any additional proposals--because my time is 
up--on what we ought to do from here on in, and I agree with 
more specific projects. I am a big believer in Eximbank. We 
have some problem with our colleagues in the other body and 
sometimes in this body as well, but thank you very much.
    Chairman Gilman. [Presiding.] The gentleman's time has 
expired. Thank you.
    Ambassador Swartz, what do you predict to be the future for 
Russia and our relationship with them if our current policy 
does not change?
    Mr. Swartz. Mr. Chairman, in your absence I spoke about 
that, a little, but let me say a bit more. I believe that first 
of all, we have to understand that our ability, even as a great 
power that we are, to affect events abroad is a limited 
ability. So we are talking about incrementalism. That is the 
first thing that I would say.
    Chairman Gilman. Talking about what?
    Mr. Swartz. Incrementalism. Yet, at the same time, I think 
that we have opportunities, programs, that have not been 
maximally utilized for advancing American national interests. 
The future, though, of Russian-American relations, and this is 
what I said a minute ago while you were gone, seems to me to be 
dependent at this stage of the game on how the elections come 
out. I am reasonably confident that these elections are going 
to be held; they may even be free and fair elections. What 
worries me very much is that the ordinary man in the street is, 
quote-unquote, mad as hell and not going to take it anymore, 
because many of them live worse now than they did in the Soviet 
period. This is not good.
    So I don't mean to deflect your question, but I think we 
are going to have to wait and see how the elections come out, 
and then vigorously pursue with whoever wins our agenda for 
advancing our own interests.
    Chairman Gilman. Thank you, Mr. Ambassador.
    Mr. Ermarth, as a retired intelligence analyst and also an 
expert in the field of Russian affairs, do you believe that it 
was necessary for our policymakers to have access to sensitive 
intelligence information on corruption in Russia and in the 
Yeltsin government in order to realize the extent of the 
problem? Or could they have assumed from the many reports in 
credible, open, press publications in both Russia and the West, 
that this was a serious problem?
    Mr. Ermarth. Mr. Chairman, there is no question in my mind 
that the publicly available information coming out of Russia 
made it very clear what the dimensions of the problem were. At 
the same time, of course, policymakers should have access to 
the best intelligence available. Being careful not to go beyond 
what is appropriate to say publicly on intelligence here, I can 
say that what was available through intelligence sources and 
methods would serve largely to amplify and to provide rich 
detail to what was thoroughly presented in the public domain.
    Chairman Gilman. Mr. Ermarth, in your ``National Interest'' 
article earlier this year, you make reference to Russian 
official Anatoly Chubais' statement last year that with regard 
to a loan to the Russian Government that went through the IMF 
with U.S. support, that the Russians had ``conned'' the IMF. 
You then went on to point out that our foreign policy regarding 
Russia involves such large sums of money as that IMF loan and 
that dealings with Russian officials and others can involve a 
``thicket of insider relationships'' where there is room for 
``the wasteful, the dangerous and the sinister,'' again your 
quote.
    Am I correct in interpreting your remarks as a warning that 
support for large loans to the Russian Government, and other 
forms of financial support for it in recent years, may not just 
stem from American policy prerogatives, but from the self-
interest of some in the United States and elsewhere? If so, can 
you expand on your comments?
    Mr. Ermarth. You have interpreted my comments correctly. I 
can, indeed, expand on them. But what is, in fact, going on in 
this dimension is something that the hearings of this Committee 
and other Committees ought to explore. I believe that the 
enormous sums of money that have come out of Russia into our 
economy and others in the western world have created 
stakeholding interests that have exerted political influence to 
keep the IMF funding going and so forth.
    There have been other kinds of, you might say, insider 
dealings. As Ambassador Tom Graham has pointed out in testimony 
before another Committee, much of the economic policy support 
through the IMF was decided in a very small group of American 
and Russian English-speaking officials in which context Mr. 
Chubais was speaking. It was not just the Russians that conned 
the IMF, it was this little group of Russians and Americans 
that conned the IMF into believing that things were better and 
more promising than they looked.
    Finally, as another Member of this Committee, or I believe 
the visiting Member pointed out, there is the very open stake 
of various American contractors and businesses in various kinds 
of Russian aid, like our farmers today. But is it really wise 
to support our farmers by sending to Russia food that they may 
not need, the proceeds of which end up in corrupt private 
hands? All of these are questions that have gotten into the 
public record and I believe need to be examined, Mr. Chairman.
    Chairman Gilman. One last question, Mr. Ermarth. In your 
article in the ``National Interest'' earlier this year, you 
referred to money laundering done by the KGB at the instruction 
of the former Soviet Communist Party Central Committee. 
According to your article and several other reports in recent 
years, foreign accounts and front companies were set up by the 
KGB in the process.
    What is your best estimate of the amount of money involved, 
who do you believe now has control of such front companies and 
accounts, and do you believe that officials in the Kremlin have 
control over these accounts?
    Mr. Ermarth. The best estimate that I know as, I wrote in 
the ``National Interest'', was about $20 billion. There have 
been other estimates of what the KGB sent out of the country 
between around 1985 and 1992: around $20 billion. All of that 
money, all of the networks, all of the companies, all of the 
associations that were set up then have blended imperceptibly 
into the vast, plundering, laundering apparatus that we see at 
work today.
    Who controls exactly what is very difficult to tell from a 
distance? I don't believe the Kremlin lost control of these 
funds; in fact, some of the wealth at the disposal of the 
Kremlin's quartermaster, Mr. Boradin, derives from those funds 
or activities like that. On the other hand, it didn't retain 
the old kind of control. As I said, the old money, the old 
organizations, the old connections that the KGB set up, blended 
imperceptibly into this new toxic mix of crime, corruption, and 
insider business.
    Chairman Gilman. Thank you very much, Mr. Ermarth. My time 
has expired.
    Mr. Lantos.
    Mr. Lantos. Thank you, Mr. Chairman.
    I find the two testimonies remarkably different. As I read 
yours, Mr. Swartz, it seems to me that you express almost 
pathological hatred for Strobe Talbott, and that is your 
privilege, but that really is not helpful in understanding our 
policy toward Russia. You talk about Mr. Talbott being a self-
proclaimed expert on Russia. Unless I am mistaken, he is the 
translator of Khrushchev's memoirs, he is the author with 
Presidential historian Michael Beschloss of a brilliant book 
called ``In the Highest Places,'' which is a discussion of 
U.S.-Soviet relations during the last years; he has devoted 
much of his life to understanding Russian literature, culture, 
history, government, politics, and is one of the few high-
ranking American officials with a very deep understanding of 
Russian society.
    So this is not a self-proclaimed illusion; this is the 
product of a lifetime study of Russia, and it rarely happens 
that people high in the policymaking apparatus have the degree 
of scholarly understanding that Mr. Talbott has so clearly 
exhibited. Now, you are still free to hate him, but I don't 
think that is helpful in our understanding of what has gone on.
    I find Mr. Ermarth's observations more analytical; and 
allow me to agree with some of them. You are suggesting several 
things with which I agree. You are suggesting, for instance, 
that in the early period, 1992, 1993--and I was in Russia in 
that period several times--there was tremendous admiration on 
the part of the Russian people for the United States, the 
American people. You are absolutely correct that this has been 
largely dissipated. The reason is the profound, perhaps naive 
disappointment and disillusionment on the part of the Russian 
people in expecting western aid to lubricate this historic 
transformation.
    When I was in Russia in 1992 and in 1993 and in 1994, as 
probably you were, you probably recall that they had high 
expectations of what the West will do for them in lubricating 
their transformation from a totally totalitarian police state 
and a dysfunctional economy into a democratic society with a 
functional economy. This hasn't happened. It hasn't happened 
for many reasons, but let me tell you what in my view is 
perhaps the single most important reason, and I apologize for 
using statistics.
    When Germany was unified, the 17 million people of East 
Germany every single year received $100 billion in transfusion 
from West Germany. The 150 million Russian people received 
approximately $1 billion in transfusion. Now, I am not 
recommending it should have been 100 times that or 50 times 
that, but I simply think that it is wholly unrealistic to look 
away from the economic realities. The West hoped that they 
could facilitate the transformation of Russia from a 
totalitarian police state with a dysfunctional economy into a 
vibrant democracy with a functional capitalistic economy, 
without any help. This was an incredibly naive, childish, 
ludicrous view, and to a very large extent, we are now paying 
the price of having, finally, come face to face with this new 
reality.
    I also think you are correct, Mr. Ermarth, in deploring, if 
I may quote you, the great weakness of the rule of law in 
Russia. You are totally correct. Wee were not running Russia in 
the last 8 or 9 years. We were not in charge of the Kremlin. It 
is a very naive assumption to say that we could have created a 
system of laws which are transparent, respected, universally 
applicable, admired, which would have created, I fully agree 
with you, an infinitely more likely framework for the 
transition.
    But, unlike the Second World War where we defeated Germany 
and defeated Japan, we ran those two countries with our 
military occupation forces, Lucius Clay and Douglas MacArthur, 
and what we said happened. We did not defeat Russia in the Cold 
War, in a military sense. This was a Russian government 
horrendously flawed, horrendously incompetent, horrendously 
corrupt, but it was not our government. To blame the 
lawlessness of the Russian system, which is so self-evident, on 
us is an absurdity. We were not in charge in the Kremlin, and 
everybody in this room who has the slightest understanding of 
who called the shots clearly knows that.
    Finally, whatever leverage we did have, and we did have 
considerable leverage at the time of the collapse of the Soviet 
empire in the Bush Administration, vanished when the Russians 
became aware of the fact that they were getting nothing from 
the West. They got minimal assistance, minimal assistance from 
the West, not only from us but from our western allies and 
Japan. So our leverage, whatever it was in 1990, 1991--and it 
was considerable--it vanished when the Russian people and the 
Russian Government understood that they were getting very 
little from us.
    As a matter of fact, one of the most dangerous consequences 
of our reduced leverage was that when we quite properly 
attempted to stop the flow of high-tech weaponry to countries 
like Iran, they told us to go fly a kite. They told us to go 
fly a kite because we had no leverage with them. Their high 
expectations of 1989, 1990, 1991, and 1992 went up in smoke.
    So while you are perfectly correct in saying it is a 
largely lawless society, it is a largely lawless society 
because given the realities of Russia's chaotic political 
criminal system, respect for laws, transparency of laws was not 
going to be forthcoming and it hasn't been forthcoming. That is 
why we are confronting a lawless society.
    Thank you, Mr. Chairman.
    Chairman Gilman. Thank you, Mr. Lantos.
    Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you, Mr. Chairman. I thought Mr. 
Lantos might want to give them some time to answer the 
question.
    Mr. Lantos. I will be happy to have them answer, Mr. 
Rohrabacher, if the Chairman is gracious enough.
    Chairman Gilman. I will be pleased to, on Mr. Lantos' time, 
if you might want to respond to Mr. Lantos' comments.
    Mr. Ermarth. Mr. Chairman, inasmuch as Representative 
Lantos found my remarks so agreeable, I am very reluctant to 
rebut him, but I have a couple of points of qualification.
    While inadequate funding, if you will, contributed to 
Russian disappointment, there are other factors involved. The 
Russian reformers went through a series of strategic steps from 
decontrol of prices to voucher privatization to loans for 
shares, which quite apart from the amount of money we 
supported--we supported--that led to the impoverishment of the 
Russian people. I am glad we didn't put more money behind the 
policies we were supporting in Russia. I would have been happy 
to put more money behind better policies.
    As to rule of law, of course we couldn't create it from 
abroad, but we could have been more explicitly and consistently 
supportive of Russian efforts to create the rule of law as a 
condition for our support: for example, the Duma-passed money-
laundering bill last year, which Yeltsin vetoed ostensibly on 
human rights grounds because it would interfere with capital 
flight actually, and our protests were quite mild.
    We did have leverage, it is true, at the beginning. I am 
sorry that the Bush Administration wasn't more active, but it 
didn't have a lot of time and was, in my opinion, somewhat 
fatigued by the previous 3 years. This didn't mean, however, 
that the Clinton Administration was without leverage, as the 
Congressman suggested, when it took office in 1993.
    Chairman Gilman. Thank you, Mr. Ermarth.
    Ambassador, did you want to comment?
    Mr. Swartz. Yes, Mr. Chairman. With due respect to 
Representative Lantos, I would like to respectfully disagree in 
his assertion that I have a pathological hatred for Mr. 
Talbott. First of all, I don't hate anybody, pathologically or 
otherwise. Second, Mr. Talbott and I have always been on 
friendly terms and I believe we still are and will continue to 
be in the future.
    The point, though, is--and that is what I was trying to 
make--if you have someone who is the point person and 
identified as such at a very high level of the American 
government for Russian policy at the outset of a generation, 
then the simple rules of accountability mean that as problems 
arise and you go down the pike and you are 6\1/2\ years into 
that Administration, that perhaps that same individual should 
be the one who would answer under these accountability rules 
that we operate under. That was the only point I was making.
    Mr. Lantos. You didn't use the word ``point person''; you 
said ``self-proclaimed expert.'' Well, if you are an expert, 
you are not a self-proclaimed expert. If you have spent a 
lifetime studying Russia, then it is not unreasonable that 
people look at you as one of the many experts.
    Mr. Swartz. Expertise can be both proclaimed by yourself 
and by other people.
    Mr. Lantos. You state that it is self-proclaimed.
    Mr. Swartz. That doesn't mean that other people don't 
acknowledge his expertise. I am in no way denying his 
expertise.
    Chairman Gilman. The gentleman's time has expired. We are 
pleased to have two experts before us.
    Mr. Rohrabacher.
    Mr. Rohrabacher. Mr. Chairman, thank you very much and 
thank you for holding this hearing today. I think it is a long 
overdue account of what has been going on in Russia. Although I 
agree with my colleagues on the other side of the aisle that we 
should try to look for solutions, I also think that holding 
people accountable for the policies that they have presented to 
the American people as something that would work, yet haven't 
worked, they should be held accountable for presenting these 
policies and instituting those policies that haven't worked.
    First, let me, before I ask my question, salute my friend, 
Fritz Armitage, who has had a long and distinguished career in 
American intelligence and in fact, worked with me during the 
Reagan White House days. I believe that he made a major 
contribution to perhaps the most historic achievement in my 
lifetime, which was the disintegration of Communist power in 
Russia, which was, after all, this great achievement of the 
Reagan Administration, this legacy that I believe has been 
squandered.
    I, unfortunately, believe that when Reagan left office and 
when George Bush was entering office, it looked like the world 
was just ready to remake and to create these wonderful new 
opportunities for all of humankind and especially there in 
Russia. That legacy has, unfortunately, as we can hear today 
and as is clear just from reading the newspaper, that legacy 
has been squandered. Hopefully, it can be recaptured, but I 
don't know.
    First of all, Mr. Ermarth did answer the question about 
more aid, and I do believe, just to take more trucks of money 
and shovel it out of the back into Russia certainly would have 
resulted in the loss of more money.
    But Mr. Ermarth, could you tell us, and in fact both 
panelists, before the current administration came to power and 
we had policies of the Reagan Administration and policies of 
the Bush Administration, were there changes in policy that took 
place when President Clinton came into power that has 
contributed to this; policies that were changed from what they 
were before?
    Mr. Ermarth. I think the posture of the Bush Administration 
in 1992 vis-a-vis aid to Russia was one of skepticism and 
caution and a sense of doubt about how to proceed, which wasn't 
perhaps surprising given the novelty, the extraordinary novelty 
of the situation presented to them. In that situation, you may 
recall that President Nixon came back to Washington from a trip 
to Russia in the spring of 1992 urging a more generous, 
visionary, bold venture, some approach which obviously would 
have cost more money. The Bush Administration, for a variety of 
reasons one can go into in another setting, wasn't ready for 
that.
    Unlike Congressman Lantos, I don't believe the opportunity 
for that kind of boldness disappeared with the end of the Bush 
Administration.
    Now, as to changes of policy, I think there was definitely 
a change in the sense that the new Clinton Administration was 
far less skeptical, far more ready to basically sign up to what 
the team around Boris Yeltsin was prepared to do, than the Bush 
Administration in its brief time with this post-Communist 
situation demonstrated. It just got much less skeptical with 
the new Administration.
    Mr. Rohrabacher. With what Mr. Ermarth just pointed out, 
Mr. Chairman, we are here to find solutions as well as to fix 
responsibility; but as far as I can see, this Administration 
has a pattern throughout the world of getting involved in 
supporting people who are not necessarily committed to the same 
values and the same principles that some of us would like them 
to be. What you just described--let me say that I don't believe 
that the Russian people were looking for aid from the United 
States. I think what they were looking for when Communism 
collapsed was honest government and good leadership. Perhaps 
one of the solutions to our current dilemma and the current 
situation is for the United States to commit itself to finding 
honest and good leaders in the Russian people and get behind 
them 100 percent, rather than trying to work more closely with 
people who just happen to have leverage at the moment in 
dealing with them.
    Mr. Swartz. May I offer a comment also?
    Mr. Rohrabacher. Yes, and after that, I have used my time, 
but go right ahead.
    Mr. Swartz. I certainly agree with what you have just said, 
but I think it is important that we remember, at least in my 
view, when the Soviet Union collapsed, the thing that ordinary 
Russians wanted above all--or ordinary Soviet citizens, ex-
Soviet citizens wanted above all else--was to improve their 
living standards. I think that to the extent that they were 
interested in rule of law, in private market economics and so 
on, to the extent that the concepts of democracy and 
governance, that they cared about that at all, it was because 
of their exigencies of daily life.
    Now, democracy has changed things from the Soviet period. 
It has now allowed these people to vote, to vote and express 
their views, and they have done so and we will see now what 
they come up with again. So I think that that is an important 
thing that we have to keep in mind.
    I would just like to offer a comment on leverage. It seems 
to me that leverage as a potential instrument for American 
policy continued well into the mid-1990's and, to a certain 
extent, exists even today but in greatly diminished form. In 
fact, I would say that the relative existence of leverage as a 
concept in implementing our policy toward Russia is directly 
proportional to the amount of concrete results that ordinary 
Russians who I am talking about could see in their daily lives.
    So as that doesn't go up, leverage goes down, but I do 
think leverage continued to be a significant factor well into 
the mid-1990's and to some extent, even today.
    Mr. Rohrabacher. Thank you, Mr. Chairman.
    Chairman Gilman. Thank you very much.
    Mr. Berman.
    Mr. Berman. Thank you very much, Mr. Chairman.
    Ambassador Swartz, you may well not have intended it that 
way, but your testimony did come off as an ad hominem attack on 
Deputy Secretary Talbott. Talking about dilettantes in the 
salons with the literati as sort of the essence of his 
understanding of Russian culture and life, it seemed a little 
personalized. But the problem I have is that I hear your 
general assertions of the quote ``Talbott policy,'' but I don't 
see in your testimony the specifics to back it up. I read your 
testimony; I don't know what happened in Belarus that 
destroyed, presumably at least, an aspiring democratic leader 
and brought back a neo-Stalinist into leadership, and that you 
had the right idea and Clinton screwed it up. You don't bring 
it out, you just assert it.
    You talk about Clinton's and Talbott's russocentrism, and I 
see your point. All I remember is in the late 1980's and early 
1990's, there was a bipartisan policy. George Bush and 
Democrats in Congress had a lot invested in Gorbachev, and it 
was on the right of American politics that the drum beat grew 
and grew and grew, that Gorbachev is a Communist, always will 
be a Communist, and that the true, pure Democrat, the force for 
liberation, the force we should be banking on, that is coming 
from the right of American politics, was Boris Yeltsin. Boris 
Yeltsin, the opportunistic, drunk, shallow intellectual 
Communist forever, who stood on the tank and stopped the coup 
against Gorbachev--I don't know whether you in your historical 
perspective think that that was an important and brave act that 
in the end helped serve the interests of peace and stability or 
not; but, given your general assessment, it seemed to me 
somewhat one-sided in that regard.
    I understand under pressure from a Congress that wants the 
farmers to be able to ship food anywhere, that perhaps the 
commodity provisions didn't serve the interests. But I read 
Leon Aaron's article and he says, after pointing out just where 
the Soviet Union was in the last year of the Soviet empire, he 
writes a paragraph which says, ``While it is true that millions 
of people, especially retirees, collective farmers, and workers 
and the mammoth military-industrial complex were impoverished 
by galloping inflation and cuts in State spending,''--and by 
the way, galloping inflation, when we went there in April 1993, 
Clinton in office less than 3 months, hardly enough time yet to 
ruin American policy toward Russia, there was galloping 
inflation, and those crypto-pseudo Democrats like Gaidar and 
Chubais--Gaidar was gone, and Chubais was very much in favor of 
his voucher programs--these were the people that I remember the 
previous Administration were investing a great deal in that you 
now, after the fact, seem to cut at the knees.
    But Aaron continues to say, ``For the first time in Russian 
history, there was a sizable middle class and an 
intelligentsia, outside State employees. Before the crisis of 
April 1998, almost one-fifth of Russians surveyed said that the 
economic situation of their own family was improving. Between 
1990 and 1997 car ownership increased by 72 percent, from 18 
per 100 families to 31. Of the total population of 150 million, 
20 million Russians were estimated by tax agencies to have 
traveled abroad in 1997. In a country-by-country ranking of 
top-spending tourists in 1996, the Russians came in eighth.
    ``The new Russian middle class suffered greatly in the 
crash of 1998 and it will take a few years for the standard of 
living to return to pre-crash levels. Yet there is no reason to 
doubt that this will happen. It may currently be the rage in 
Russia to speak of Russia's virtual economy, but we are 
suddenly discovering that a Russian market economy does exist 
after all, and despite its deep distortions, responds to 
economic stimuli much as any market economy would. In full 
accordance with supply side theory, the continuing absence of 
price controls, a cheaper but stable national currency and 
drastic reduction of imports have unleashed domestic 
productions,'' and it goes on and on.
    I have a lot of concerns about our policy, the investment 
in a Yeltsin family, a small group of oligarchs who seem to me 
have done much to bleed much of Russia dry here. I do think in 
that last election, the choice at that particular point was 
Yeltsin versus Zhyuganov.
    I don't quite know how we do what Mr. Rohrabacher suggests, 
hold an American endorsing convention and then have our PAC 
give the true candidacy of the Russian people the kind of 
support that that person needs in order to win, but your effort 
to differentiate between Bush policies and Clinton policies, 
and the failure, at least in your testimony, to specify the 
specifics of what was wrong, rather than general allegations, 
does concern me.
    Mr. Swartz. First of all, I would be happy to give you as 
many specifics as you would like as time permits this morning. 
On the food question, though, since you raised that one, that 
is a matter of specific concern both with regard to Russia and 
the other countries. With regard to my own experience and 
things that I saw and commented on and was involved with in a 
policy sense, namely grain shipments to Belarus, clearly there 
are two issues. One was that the Belarussians did not need the 
grain. The second one is by shipping grain and distorting the 
market, thereby our general policy of trying to foster economic 
transformations in the agricultural sector, eliminating 
collective farms, making them productive and so on, would have 
been and in fact was undercut by those activities.
    Mr. Berman. Did the shipments start with Clinton? I truly 
don't know.
    Mr. Swartz. Well, could I just answer the Bush-Clinton 
differentiation by way of answering that question?
    Mr. Berman. Tell me what happened on that fateful day in 
Belarus where you said one thing and Clinton did something else 
which caused the fall of democracy.
    Mr. Swartz. Many fateful days during the Bush 
Administration shipments took place, yes, of a limited number 
of food commodities and of medicines, because in that immediate 
post-Soviet period, there were great distortions and there was 
simply food unavailable in many areas. I would draw a 
distinction between a crisis situation and then a more normal 
situation when grain is planted, seeds are planted and grain is 
harvested and grain is produced and so on. So that is that 
point.
    On the Bush-Clinton dynamic, as I said in my testimony, who 
knows what would have happened during the Bush Administration. 
Maybe things would have gone down the tubes completely for all 
we know. We can't say. All we can say is that certain policies 
and certain policy frameworks were put in place during the Bush 
Administration, which I think held us in good stead in 1992 and 
beyond. Frankly, I think that the Clinton team that came in 
kept up with most of those policy sort of concepts. For 
example, the denuclearization which the Administration takes 
such great pride in saying that is the great success of Clinton 
diplomacy, in fact began during the Bush Administration. But 
you are wrong if you say that I am being partisan, because I 
criticize basically both of them, but we only had a year of 
Bush to be able to assess, and we have had 6\1/2\ years of the 
Clinton Administration.
    As far as the personal attack, or alleged personal attack 
on Talbott is concerned, I can only repeat what I said before: 
which is, if someone is going to be posited as the public point 
person, the leader of our Russia policy, then simple rules of 
accountability demand that that person be the target of an 
assessment of how that policy works. That is all I am trying to 
say on that.
    Yeltsin and the tanks, sure, a great act of bravery. But 
the Russian persona and especially the Soviet persona is a very 
complicated thing, and we can't say that X is good and Y is 
bad; all I can say is that both X and Y are gray, and that 
certainly holds true for Yeltsin.
    Mr. Berman. You would say that X was good and Y was bad.
    Mr. Swartz. No, not at all.
    Chairman Gilman. The gentleman's time has expired.
    Dr. Cooksey.
    Mr. Cooksey. Thank you, Mr. Chairman and thank you for 
being here to testify today.
    Ambassador Swartz, in September 1993, Russian President 
Yeltsin reportedly gave President Clinton an hour's notice that 
he was going to dissolve the Russian Parliament. During the May 
1995 summit with Clinton, Yeltsin stated that there were no 
ongoing military operations in the region of Chechnya, even as 
the forces were attacking the Chechnyan villages. Through most 
of this decade, while the Yeltsin government has been denying 
that Russia was allowing any proliferation of dangerous weapons 
technology to Iran, it appears that there has, in fact, been 
proliferation.
    In June of this year, Russian peacekeeping troops suddenly 
deployed from Bosnia into Kosovo, while Yeltsin and the other 
Russian leaders are saying no, it is really not happening; and 
then Yeltsin later, I think even publicly, commended the 
general that did it, did the surprise move.
    Finally, recently the Russian Government said that they had 
no intention of mounting a military operation in Chechnya, but 
in fact they did so.
    My question to you, Mr. Ambassador, is why have these 
apparent lies been overlooked by the Administration and by this 
government? Is everyone naive, or is it lack of sophistication? 
What is the reason now? That is my question.
    I have just been on this Committee for a short period of 
time. I have to do a lot more reading than probably other 
Members who have so much institutional knowledge. This is a 
book that I read recently written by a U.S. Berkeley professor, 
``The Soviet Tragedy: The History of Socialism in Russia, 1917 
to 1991,'' by Martin Malia. But after reading this book--and I 
was in the military 30 years ago or 30 years ago plus 30 days 
when I got out--I was reminded that there were some really bad 
people running the Soviet government over a period of many 
years, and they did some really bad things, lying being the 
least of all of what they did. That was just routine for them. 
Has anyone read this book? Is anyone aware of the fact that 
they do, in fact--their leadership lie and cheat and steal? I 
think there are some wonderful Russian people, but their 
leadership has been bad.
    My question is, why have these lies been overlooked by our 
government? Thank you.
    Mr. Swartz. Well, Congressman, you appreciate that I can't 
speak for the Administration. They don't seek my advice very 
much these days, and I say that with tongue in cheek. As I say, 
I have lots of friends in the Administration. But, my own view 
on the question that you have posed is that Russian governance 
is a very nuanced sort of a situation. There are very 
significant questions as to the extent to which Yeltsin is 
personally involved in decisionmaking, even on matters of 
critical, critical mass, in many cases. We don't know, at least 
I don't know, not being privy to the latest intel briefings and 
so on.
    The Russian military move into Kosovo at the very moment 
that it was being denied by the civilian leaders of the Russian 
Government raises serious questions as to where are the power 
loci here, who is in charge, who is calling the shots and so 
on. This is a very nuanced situation, and my guess would be, 
although I again have no particular inside information into how 
this Administration is reacting to these things, they are 
probably somewhat flummoxed as well when things of that nature 
happen, and probably are just trying to figure out as well and 
to continue to engage as effectively as possible in a situation 
where there may be different loci of power and of 
decisionmaking, and it may be a moving target. That would be my 
guess.
    What the American response should be to these situations is 
another story altogether, and I again say that we are going to 
have to wait and see how the elections come out and see if 
there is some sort of true governance that starts to take place 
in today's Russia. As things stand right now, I think there are 
too many imponderables and too many nuances for us to be able 
to go to somebody, the Foreign Minister, the Prime Minister, or 
President Yeltsin himself and say, ``Why did you lie to me?'' 
Because it may well be that they didn't. It may well be that 
they just didn't know what another arm of government was trying 
to do. That is kind of how I would answer.
    Mr. Cooksey. That is a plausible explanation, I would 
presume.
    Did you have any comment?
    Mr. Ermarth. I would underscore what Ambassador Swartz said 
about the lack of coherence in a lot of Russian policymaking 
over the years, particularly as time has gone on. But on our 
side, I do think the Administration can be, must be, faulted 
for signaling to the Russian regime, to the Yeltsin regime, not 
just to Yeltsin personally, but to that group of people that 
constituted the Kremlin. It wasn't just with what we said, it 
was kind of what we supported, what we--when we agreed to send 
the money--what we criticized, but not very strongly. By body 
language, basically, we were saying we are in your corner, with 
a couple of big exceptions like proliferation to Iran. We are 
pretty well ready to back what you think is really important to 
you.
    Hence, the different economic reform moves that didn't look 
all that good at the beginning and mostly turned out badly from 
the point of view of the public, and things like the Chechnyan 
war and Yeltsin's showdown with the Parliament in September and 
October 1993. Not only did the Yeltsin regime get the message, 
but the Russian public got the message. They said, OK, the 
Americans are supporting this about which we are increasingly 
alienated: economic reform that is impoverishing us, and so-
called democratization that is becoming more authoritarian and 
unpredictably authoritarian. What is going on here? Are the 
Americans blind or do they have a plan? They concluded 
eventually it is planned, it has been so consistent.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Cooksey. Thank you, Mr. Chairman.
    Chairman Gilman. Mr. Hastings.
    Mr. Hastings. Thank you very much, Mr. Chairman.
    Mr. Chairman, I appreciate very much your holding this 
hearing, but I must admit some serious reservations regarding 
everything that I have heard here. I think the focus is wrong. 
Who did what when, or what was right, or which Administration--
the Bush Administration or the Clinton Administration--has done 
something, ignores what our immediate responsibilities are in 
my view.
    Gentlemen, I appreciate your testimony, but I would tell 
Mr. Martin Cannon, although I don't think I will be here when 
he testifies, that I was appreciative of many of his comments, 
but among them was that Russia is in generational transition.
    Now, listen. At the beginning of Russia's transformation, 
we knew that it would be a long-term endeavor, unprecedented in 
history, with successes and disappointments on the way. A 
transformation of this magnitude is going to take decades, even 
generations, to complete.
    A mere 7 years out, regardless of whether it was Bush or 
Clinton or any combination thereof, criticism of Russia's 
transition ignores the fact that it is still in midstream. Mr. 
Cannon, for example, referenced that maybe, maybe we are a 
third of the way. Amidst all the problems, the transition 
continues, and Americans in my view, at least insofar as Russia 
is a threat, are perhaps safer than ever.
    I think it is ignorant of us to ignore that we have 
completed over 71,000 exchanges from the NIS since 1993, 35,000 
from Russia. People don't know things that Members of Congress 
have done. I have been to Uzbekistan myself, twice. Stayed 
there a week. I have been to Kazakhstan, Turkmenistan, 
Kyrgyzstan, Azerbaijan, and Georgia, and last year was in 
Russia for a week in St. Petersburg, and what I witnessed was a 
change in progress and in recognizing how hopeless and helpless 
some of us may be in order to conduct the kinds of changes that 
we would like to see take place immediately.
    We helped draft post-Communist legislation on the civil 
code and the criminal code, as well as bills on money 
laundering and corruption. I have heard nothing here regarding 
the cooperation of the FBI and the NVD, and they have had 
extremely successful undertakings in targeting criminal 
elements that have been pursued. We created legal clinics, we 
gave grants to NGO's and created programs that highlight the 
successful efforts at combating corruption. We worked directly 
with local law enforcement on specific cases to help them build 
the capacity to deal with widespread crime and corruption.
    We provided technical training, we have allowed for 
enhanced or local TV for people. When you are a novice as I am, 
and perhaps a bit naive, and you can walk the streets of St. 
Petersburg and you can see a vibrant society, albeit with a 
gray and a black market still operating there, then it is 
foolish for us to sit up here and try to pinpoint somebody who 
did not have a handle on something as slippery as this.
    The questions ought to be what must we do, what should we 
do, what can we do to help create a stable Russian society? Our 
continuing disengagement will allow for a destabilized Russia 
or a destabilized Europe and the costs will be insurmountable 
insofar as global consequences are concerned.
    There has only been $7 billion of direct aid offered by the 
United States. Two-thirds of that has gone to the nuclear 
demilitarization process, another $7 billion to try to help 
American businesses has been offered there. I think our 
strategy of engagement, establishing among other things the 
U.S.-Russia Binational Commission, which has an extraordinary 
agenda, is not to be frowned upon.
    Let me ask you all this question: Ignoring who failed and 
who succeeded, what, gentlemen, the two of you, would be your 
top three priorities that we should exercise as our next steps? 
Enough of who was at fault about what.
    Mr. Swartz. Thank you very much for the chance to answer 
that question. Speaking for myself, my top three priorities 
would be education, education, and education.
    As you have correctly pointed out, Congressman, all kinds 
of activities have been taken that allow for the process of 
rule of law in police cooperation, et cetera, et cetera, et 
cetera to take place. What you said earlier about the 
generations, years and years needed to achieve these societal 
transformations is something that certainly resonates in my own 
analysis and my own thinking, because transformations means you 
have to transform what is in people's minds, right?
    The people who are out there, who are looking for their 
meat and potatoes and are unhappy about the economic situation 
today and remember all too well the Soviet period, with time 
they are going to die away. The thing that has to be done, 
starting with the youngest children and right up through higher 
education, is to inculcate the value systems that we hold so 
dear in Judeo-Christian society into those generations of 
upcoming Russian and Belarussians and Ukrainians and so on. 
That is what we have to do. I think the more effort and money 
and concrete projects that can be put into education is where 
the return is going to be paid in terms of our own national 
security interests down the line.
    Mr. Ermarth. Mr. Congressman, my response to your challenge 
would be three things. I am speaking to the present 
environment, which is between our elections and their 
elections, when I don't think a lot of terribly important 
programmatic initiatives ought to even be attempted because 
they don't really have a functioning government, and we just 
have to kind of face that.
    I would lay down three requirements for us over the next 18 
months. First, a thorough audit of our policy, not to find 
fault, but to establish what worked and what didn't work; 
because without that, we might be unable to protect successes, 
and there have been some.
    Second, a package of policies, administrative measures, 
maybe even laws in such areas as money laundering, that assure 
transparency of the interactions that take place.
    Third, we have to make very, very clear to the Russians 
that everything depends, everything depends on their getting 
through those elections; that there should be no notion on the 
part of any part of the political spectrum that we will turn a 
blind eye or somehow, gulp and find acceptable some 
cancellation or disruption of those elections.
    Mr. Hastings. Thank you, Mr. Chairman.
    Chairman Gilman. The gentleman's time has expired. Thank 
you, Mr. Hastings.
    Mr. Campbell.
    Mr. Campbell. Thank you, Mr. Chairman. You may have covered 
this earlier, I couldn't be here, so if you have, I don't wish 
to impose on my colleagues, just say you have; and I can read 
the record, and will. But my focus is on the IMF extension of 
credit in last early summer, early summer of 1998, followed 
rather precipitously in my view thereafter on the default of 
the Russian obligations. So let me just interrupt to say, have 
you already discussed this?
    Mr. Ermarth. No.
    Mr. Campbell. Great. Then my question is directed to both 
gentlemen. To the extent you know, and if you don't, just tell 
me, that is fine, but to the extent you know, I want to find 
out what IMF knew. That concerns me, about the extension of 
credit prior to what appeared to be--must have been, I would 
say--a predetermined decision to default on bonds. It looked to 
me as though we were either took, I mean IMF was took--bad 
English, but you get my drift--or were hopelessly incompetent. 
I hope you have a third option, but those are the two I can 
think of. I would be happy to hear the answer of either 
gentleman.
    Mr. Ermarth. Mr. Campbell, I have a response to that. It is 
still a subject that is getting more and more light shed on it, 
it is still a subject that requires continuing investigation: 
What happened in the spring and summer of 1998 with respect to 
the IMF money? Well, as the Chairman has pointed out in 
reference to something I wrote, the architect of the reform 
policy in Russia, Mr. Chubais, said we conned the IMF. I take 
him to mean not just we Russians, but we Russians and our 
American partners who prettified the situation to the point 
where the IMF could rationalize another round of lending.
    Now, much turned on this bazaar that they set up called the 
GKO market or the government short-term bond market. It was 
kind of a casino to start with, which by presenting a market in 
which there wouldn't be any losers, everybody could make the 
big profits. They began to create a pyramid which by the spring 
of 1998 was soaking up most of the Russian Federal budget. This 
was bound to collapse, and eventually it did.
    What the IMF--and into the teeth of this reality, the IMF 
lent--and I believe the total sum for that tranche was about $4 
billion, ostensibly for the purpose of supporting the currency 
in the budget. What it basically did was support a process in 
which Russian and probably some western speculators in the GKO 
market could convert their ruble-denominated GKO's into dollars 
and scoot the money out of the country.
    Now, if that wasn't diversion, I don't know what the word 
means. Something like that seemed to be very likely to happen 
and was obvious to a lot of people who were wringing their 
hands at the time.
    This has been speculated about even in August and September 
1998 in Russia and some western articles, but since that time, 
Mr. Skuratov, the Russian General Prosecutor, a commission of 
the Upper House of the Russian Parliament, and now a journalist 
who wrote an article that I brought to the attention of the 
Committee just before these hearings, have laid it all out: 
Yes, we were conned, and your suggestion of the different 
choices pretty much brackets the possibilities.
    Mr. Campbell. Thanks, I guess.
    Mr. Swartz.
    Mr. Swartz. I have nothing to add to what he said.
    Mr. Campbell. Thank you, Mr. Chairman. I yield back.
    Chairman Gilman. Thank you, Mr. Campbell.
    Mr. Sherman.
    Mr. Sherman. Thank you, Mr. Chairman.
    I think that one concern I have about American policy is 
that it gives inadequate consideration to the pride of the 
Russian people. Here is a country that a few years ago was one 
of two superpowers, and now we are telling them what to do 
about almost everything. It seems that this situation is not 
really analogous to the post-World War II period where Germany 
and Japan were occupied and remade, but maybe has some 
analogous aspects to the period after World War I where Germany 
ceased to be a superpower not because it completely lost on the 
battlefield, but because after a long conflict, its system 
imploded and it raised the white flag in the first World War of 
our century. Perhaps the Cold War was the Third World War of 
our century.
    It seems as if there is nothing that goes on in Russia 
about which we Americans do not have an official and public 
position. Now, some of this is understandable. We insist on 
promoting democracy around the world, and I think the Russian 
people and other peoples respect that, but there is no area 
about which countries get more sensitive than their own 
territorial integrity.
    I wonder whether we are rubbing Russia's nose in it when we 
decide to have an opinion on what they should do in Chechnya. 
Here you have a part of the Russian Federation which then not 
only establishes its quasi-independence, but then wages a war 
of aggression on other Russian areas and appears to be somewhat 
responsible for terrorism in the Russian capital.
    I wonder if you gentlemen could simply comment on whether 
we are perhaps planting the seeds for a backlash against 
America, and a wave of potential nationalism supported by 
nuclear weapons, if not an adequate economy, when we start 
scolding the Russians for their policy in Chechnya. Not that it 
is necessarily good policy, but simply one that perhaps we 
shouldn't have an opinion on.
    Mr. Ermarth. Mr. Chairman, we have agreed that I will go 
first on this one.
    The point you make is an extremely important one, and what 
it leads one to is to recognize that whatever we say about 
Russia's development as one country and one government to 
another, we have to be very careful about the style in which we 
speak. It is easy for us to come across to other countries as 
not just a superpower but a Nazi, and this is resented.
    At the same time, we have to recognize our obligation to 
decide. I mean, the Russians want and need a variety of help 
from the outside world. Some of it is just money, and some of 
it is a welcome mat into the western economic community. We 
can't avoid deciding for our own policy when it is and how it 
is that we have met the conditions. This is an unavoidable task 
that we decide what our policy is. What will be the conditions 
under which we send American taxpayer dollars into that 
country? We are going to have to make those decisions.
    I think an extremely important point to keep in mind when 
doing so is that we should ask the Russians more broadly than 
this favored little team, this dream team or whatever it 
happens to be, empowering the Kremlin, ask across the political 
spectrum in the Duma, look at public opinion. Had we consulted 
alternative views about what the Yeltsin regime was doing on 
the question of territorial integrity, for example, when the 
Chechnyan war, the first Chechnyan war started, we would have 
been much more careful about seeming to endorse this very 
unsuccessful war against a province of Russia, because most 
Russian were opposed to it.
    We have to listen better to different sources before making 
up our mind what they think works and what they think they 
want.
    Chairman Gilman. The gentleman's time has expired.
    Congresswoman Kaptur.
    Ms. Kaptur. Mr. Chairman, I thank you again very much for 
allowing me to sit in and listen to this important hearing and 
to submit for the record testimony that I offered concurrently 
this morning at the House Agriculture Committee. I thank my 
colleagues just for giving me a couple of minutes here on the 
agenda.
    I have one of the duties in the Congress of trying to 
integrate the work of our Agriculture Committee--.
    Chairman Gilman. Ms. Kaptur, your statement will be made 
part of the record, without objection.
    Ms. Kaptur. Thank you, Mr. Chairman. I have a summary and a 
complete statement and some relevant documents to submit for 
the record on the subject of our agriculture policy relative to 
Russia.
    I appreciated Ambassador Swartz's comments here this 
morning where he references some of his own thoughts regarding 
the implications of current U.S. food aid to Russia and past 
food aid to Russia. Mr. Ermarth made some rather probing 
statements in his testimony of how things aren't working.
    The reason I came over here today is to try to indicate 
that one thing I have learned in Congress. We cannot succeed 
alone in the Agriculture Appropriations Committee in getting 
focus on food commodity shipments to Russia, which this year 
alone will dwarf in value any other foreign assistance program 
we have. The latest shipment totals over $800 million, and its 
largely monetized proceeds go to the Russian Pension Fund. 
There is now an application for an additional amount that the 
Government of Russia has asked us for.
    The reason I am here this morning is to try to stress to my 
colleagues, and to anyone who is listening, that the United 
States has to have a more coherent policy that begins in the 
State Department, involves the National Security Council, and 
links to our Commodity Credit Corporation. Because what is 
happening is that the value of these food commodities--which is 
enormous and growing--when it gets inside that economy, ought 
to go at least to help with the privatization and reform 
efforts that we know we need to make in transitioning the 
collective farms. Were it not for the intervention of our 
Committee trying to get auditors over there and accountants and 
field managers and, really, the cooperation of Ambassador 
Collins to a level that I did not expect and am most grateful, 
the dollars in my opinion would not get where they need to be.
    This is not happening fully. The majority of food aid 
dollars that have gone there now have gone into the Russian 
Pension Fund. One of the questions, and my testimony documents 
this for the record, I really think is that we need some type 
of separate monitoring mechanism for who audits the Russian 
Pension Fund. Even though we can trace commodities going from 
the Port of Vladivostok to certain oblasts, when those 
commodities are monetized and dollars flow to the Russian 
Pension Fund, the U.S. Department of Agriculture and the 
Commodity Credit Corporation do not audit those funds.
    So I have a legitimate question as to what happened to 
hundreds of millions of dollars this year, and we are on the 
verge of another such sale in 2000. I think the general sales 
operations of the Commodity Credit Corporation have to be tied 
to the work of this Committee and the deliberations that occur 
inside the Executive branch.
    I hope I haven't made too long a statement there, but I 
wanted to ask both gentlemen questions, if I might. I have been 
totally frustrated by the lack of focus, I suppose, because 
agriculture seems warm and fuzzy, and nobody worries about it. 
But the whole system over there, as I understand it looking at 
history, was premised on the production of the collectives and 
the distribution of their proceeds to social welfare concerns 
within the State. When the Soviet system collapsed, there was 
very little attention given to the transformation of the 
collective structure in the agricultural countryside and, in 
fact, no credit system exists today. The teeny credit system we 
were trying to develop through ACDI/VOCA collapsed last August; 
it was only $20 million. Only $1 million has been restored 
through this recent food sale to Russia, which means largely we 
haven't done anything.
    We have through this food aid largely supported the 
parastatal entities that still control the production. Since 70 
to 80 percent of the diet of the ordinary citizen of Russia now 
is bread and potatoes, and the caloric intake is going down 
there, the entire structure remains so wed to agriculture. I am 
perplexed as an American and as a Member of Congress as to why 
we as a country can't get a coherent agricultural reform policy 
built into these food shipments, as well as the other policies 
that we try to implement toward Russia.
    Could you comment on why that might be? I have been very 
frustrated with the State Department. I can not get them to 
even spell agriculture.
    Mr. Ermarth. Why the lack of coherence that the 
Congresswoman observes exists? There are just so many 
stakeholders in this game; I am afraid that is what accounts 
for it. But this food aid program, certainly to Russia, which I 
know a little something about, requires the most thorough, 
penetrating and skeptical investigation. It has had two 
negative results that have been widely reported in the Russian 
press and in some American reporting as well.
    First, it undermined the competitiveness of Russian 
agriculture itself at a time when, from a public health and 
dietary point of view, it wasn't all that necessary. Now, maybe 
there is a tradeoff that has to be made there that I don't know 
that much about. But it hurt Russian farmers at a time when the 
objectives, economic, overall, and privatization of agriculture 
that we have for Russia want us to move in another direction. 
The other thing I am sorry to say is that money didn't go into 
the pension fund. That money was stolen. That is what the 
Russian press is saying.
    Ms. Kaptur.  How do we get--how do we use the tools of this 
government to get proper accounting of that money?
    Mr. Swartz. If I could offer an additional comment, let us 
say for the sake of argument that the money was not stolen, 
which I agree that it was--or in part, at least, because that 
is nature of the culture over there. But in addition to that, 
your real question is, how do we establish structures that will 
allow us to assure ourselves that the accountability factor 
again, that I have talked about several times today, is 
maintained in this particular area of endeavor. The answer is 
that you obviously have got to achieve a level of bilateral 
agreement with the Russians that will allow more intrusiveness 
than they currently would like to give into the area of 
accounting, bank accounts and this sort of thing.
    It could be done by an organization like VOCA. You 
mentioned VOCA. VOCA is one of the best things going out there 
I think. It is right there in the forefront of the 
privatization effort in Russian agriculture and the other Newly 
Independent States. They have a lot of credibility with Russian 
farmers, with Russian farm cooperatives and with Russian 
agricultural officials. So use of VOCA might be one way to do 
it.
    But certainly in the final analysis--and this is a bigger, 
broader question admittedly--again we have to come back to what 
is the American national interest in all of this. If it is 
pushing grain, then I submit to you we ought to push it 
somewhere where it is more greatly needed than it is in Russia 
and where, under current arrangements, the proceeds are going--
are very dubious, and cloudy and murky as to where they are 
being sqirreled away and who is getting them.
    Chairman Gilman. I want to thank the gentlelady for her 
very cogent observations, and I think she has given our 
Committee some food for thought. We will attempt to pursue her 
suggestion to a greater extent than we have in the past.
    Ms. Kaptur.  Thank you, Mr. Chairman, very much.
    Chairman Gilman. Thank you for taking the time to appear 
Ms. Kaptur. Just one last question and then we will conclude 
with this panel.
    Mr. Ermath, in your testimony you said that the total 
amount of capital flight out of Russia since the late 1980's 
might be between $200 and $500 billion, with a capital ``B.'' 
Is that an accurate estimate? If so, where is this money now?
    Mr. Ermarth. It can't be an accurate one because it is at 
best a guesstimate. I got it from John Void who wrote a ``Who 
Lost Russia'' article for the ``New York Times'' a couple of 
months ago. I think 200 billion is a conservative estimate for 
the whole period from 1985, roughly, when the CPSU and the KGB 
escalated their capital flight operations basically. It is 
probably a good deal higher than that.
    On the basis of what I know and what other estimates out 
there might be, or have been lately, I think $200 to $300 
billion is in the right ballpark. Where is that money now? 
Well, it has probably made its way out through a variety of 
channels, most of it not through laundering at all, but just 
export.
    Chairman Gilman. Mr. Ermarth, could we have been able able 
to track much of that through the international banking system?
    Mr. Ermarth. I think it is technically possible to track 
it, but I don't think it is technically possible to reconstruct 
where all that money went. One has to make some reasoned 
judgments. It didn't stay in Cyprus, it didn't stay in 
Switzerland. It went to productive places.
    What is the most productive, safest, accessible economy in 
the world in this period?
    Chairman Gilman. The U.S.
    Mr. Ermarth. That is where it went.
    Chairman Gilman. Thank you very much.
    I want to thank our panelists for your very cogent 
observations and for being able to spend the time with us.
    We will now proceed with the second panel. Our thanks go to 
both of our witnesses on our first panel.
    Mr. Ermarth. Thank you, Mr. Chairman.
    Chairman Gilman. We will now proceed to Panel Number two.
    Mr. Mike Waller is Vice President of the American Foreign 
Policy Institute, a nonprofit educational foundation where he 
publishes, as well, ``the Russian Reform Monitor'' bulletin. He 
holds a doctorate from Boston University in international 
security affairs and serves as editor of the journal 
``Demokratizatsiya: The Journal of Post-Soviet 
Democratization''.
    He has also written on the problems of Russia's transition 
in the ``Wall Street Journal'' and other leading periodicals.
    Mr. Kenneth Timmerman is a contributing editor for 
``Readers Digest'' and has written regularly for the ``Wall 
Street Journal''. He has written investigative reports on the 
arms trade, on terrorism, and on technology transfer for media 
organizations such as ``Time'' magazine and the ``New York 
Times'', spending much of his career in Europe and the Middle 
East. Mr. Timmerman also worked on the staff of our Committee 
in 1993. Welcome back, Mr. Timmerman.
    Mr. Timmerman. Thank you, Mr. Chairman.
    Chairman Gilman. Finally, Mr. Martin Cannon serves as a 
Member of the board of directors of the U.S.-Russia Business 
Council here in Washington. He also serves as managing director 
of CIS operations for the firm of A.T. Kearney.
    Chairman Gilman. Gentlemen, you may summarize your 
statements which, without objection, will be inserted in the 
record. Please proceed, Mr. Waller.

STATEMENT OF J. MICHAEL WALLER, Ph.D., VICE PRESIDENT, AMERICAN 
        FOREIGN POLICY COUNCIL, AND EXECUTIVE DIRECTOR, 
    DEMOKRATIZATSIYA-JOURNAL OF POST-SOVIET DEMOCRATIZATION

    Mr. Waller. Thank you, Mr. Chairman for inviting me here 
and for holding this hearing.
    Chairman Gilman. Mr. Waller I might interrupt, I am being 
called to another meeting at the moment. I am going to ask Mr. 
Campbell if he could be kind enough to chair the hearing at 
this time.
    Mr. Campbell, if you will please take over, and if you 
would please proceed, Mr. Waller.
    Mr. Waller. In a nutshell, the U.S. policy toward Russia, 
regardless of its good intent, has been tailor made for 
exploitation by the gangster bureaucrats, oligarchs, ascendent 
militarists and the secret police officials like the Prime 
Minister ruling Russia today.
    One of the problems has been that the Administration as 
part of its policy has discouraged early warning of this. A 
pattern, reporting on the deteriorating condition of Russia 
shows a calculated policy to prevent decisionmakers in the 
Executive branch, in Congress and in the public from learning 
the truth and taking early corrective action. This was 
something I had a hunch about, but never dared say because I 
had no proof of it as an outsider until some retired diplomats 
and CIA officials came forward confirming this is what they 
saw.
    From the U.S. Embassy in Moscow we had two senior 
officials, Mr. Ermarth and others, who have repeated in recent 
weeks that they were instructed, or other Members of the 
embassy or Treasury Department officials were instructed, not 
to write cables, not to send cables already written, and not to 
report to Washington even within State Department channels 
certain things concerning crime and corruption within the 
Russian Government and the failures of certain economic reform 
policies.
    I have got a very blunt assessment here in my written 
testimony, but point number five was the policy to ``ignore or 
suppress opinions and facts indicating that the policy might be 
failing,'' to blind decisionmakers, to blind appropriators and 
authorizers, to have the CIA and the State Department censor 
itself; and among AID contractors, of which I was a consultant 
for a very brief time, to instill a climate of fear among them 
that if you see a problem, don't talk about it or you will get 
your livelihood cutoff.
    This isn't a partisan issue; it has been raised by Members 
of both parties of this Committee. It was raised 5 years ago by 
Senator Bill Bradley and others.
    It is not an America versus Russia issue. Some of my best 
sources have been Russian officials, journalists, former 
officials, lawmakers, some of whom were corruption fighters, 
who are now dead because of their anticorruption fighting 
activity. One is Dmitri Khodolov, a Moscow journalist, and 
Galina Starovoitova, a member of the state Duma, who were both 
assassinated.
    We had early public warnings in 1994 even by the former 
Finance Minister, Boris Fyodorov, pleading with us; please 
don't send IMF money, it is only going to be used for 
corruption. There are top officials in our country who want to 
take the loans and not repay them, and it is only going to 
cause a lot more trouble than it is going to solve.
    Few Russians dared be outspoken and it was apparent that 
U.S. policy was not to support them, not to listen to them and 
to continue to link ourselves to individuals who were the 
problem.
    For U.S. AID contractors being under similar pressure, I 
was a consultant for only a month because, as a token 
Republican-oriented guy, they needed somebody to make them look 
good on Capitol Hill. So after that I left. But I found that 
this was the AID-funded ``Rule of Law'' project run by ARD-
Checchi company.
    In June 1994, they had hired an official at the insistence 
of somebody within AID, a criminologist at American University. 
I put the e-mail at the end of my written testimony, but I want 
to quote from it because it is very important; this is from 
5\1/2\ years ago. Her name is Dr. Louise Shelley. The head of 
this AID Program said, ``If I had known what Shelley was up to, 
I would have resisted'' the AID official's ``instruction to put 
her on the consulting contract. She is a bomb with a lit fuse. 
Her hobby horse is that the AID privatization program has been 
exploited by organized crime,'' and then proceeded with a way 
to figure out how to keep her quiet.
    There is a pattern of official pressure to cover things 
up--whether it is CIA; whether it is the ``barnyard epithet'' 
incident regarding an assessment of some of our Russian 
interlocutors; whether it is NASA and journalists reporting on 
corruption of NASA's space program or whether it is a cover-up 
of the laser incident where an American Navy officer was 
wounded in Washington State; the FBI's retreat from organized 
crime reportings and so forth--it is a pattern of these types 
of things to discourage and ignore this information from coming 
out.
    I would like to have three recommendations: One is to 
establish a dissent channel like the Foreign Service has to 
allow contractors who see problem areas to be able to report 
this without fear of getting penalized. Ambassador Morningstar 
attempted such a system, but it really didn't work as well as 
it might have and it needs rejuvenating.
    Second is, with our new public diplomacy effort at the 
State Department, we need a much more honest and 
straightforward public diplomacy effort to communicate with the 
people of Russia.
    Third, keep those GAO reports going. Because the 
congressionally mandated audits have done more than anything 
else to promote change.
    Mr. Campbell. [Presiding.] Thanks, Dr. Waller, and thanks 
for staying within your time.
    Mr. Campbell. Mr. Timmerman.

  STATEMENT OF KENNETH TIMMERMAN, INVESTIGATIVE REPORTER, AND 
              CONTRIBUTING EDITOR, READERS DIGEST

    Mr. Timmerman. Thank you, Mr. Chairman.
    It is a particular pleasure for me and an honor to testify 
before this Committee, where I had the opportunity to serve on 
the professional staff 6 years ago, doing nonproliferation and 
export controls. When Mr. Lantos came to France in 1993 to 
invite me to join the Committee, he reinforced my own 
conviction that issues of such monumental import for our 
national security were indeed bipartisan in nature. For most of 
the past 6 years, however, partisanship has been the rule and 
cooperation the exception. I hope we can begin to redress that 
as we look at Russia's role in the proliferation of weapons of 
mass destruction and the stunning accumulation of opportunities 
we missed to prevent that from ever occurring.
    In 1992, after I had completed a study on missile, nuclear 
and chemical weapons programs for the Simon Wiesenthal Center, 
I was in Paris at a conference and Mr. Wiesenthal paid me the 
greatest compliment I have ever received. He said, ``I have 
spent all my life tracking the murderers of yesterday. Mr. 
Timmerman is tracking the murderers of tomorrow.''
    Now, that is why we are here, Mr. Chairman, to track down 
and prevent the murderers of tomorrow, for the unchecked flow 
of Russian technology into Iran's missile and nuclear weapons 
programs and that of other countries could very well lead to 
the deaths of many of our fellow citizens tomorrow, as well as 
thousands, if not millions, of innocent people across the 
Middle East.
    Now, I certainly concur with Mr. Lantos' remark that there 
was a lack of vision in the Bush Administration between 1989 
and perhaps 1991. But being bipartisan does not mean we should 
refrain from criticism where criticism is due. We cannot 
rewrite the Bush Administration, but we can hope to influence 
the final year of the Clinton Administration and especially 
events pertaining to Russian behavior.
    The architect of this Administration's policy toward Russia 
is Strobe Talbott. He has a vision, and I would argue his 
vision is all wrong.
    I have testified in various Committees on Iran's Shahab 3 
and Kosar missile programs, which would not exist without 
direct assistance from the Government of Russia. The Shahab 3, 
in particular, which is now deployed in southwestern Iran, and 
is capable of targeting Israel with nuclear, chemical or 
biological warheads, should in my view have Mr. Talbott's name 
written all over it.
    Let me briefly summarize the more detailed chronology I 
provided in the written statement of Mr. Talbott's 
responsibility for the Shahab 3 Missile. This is not my 
opinion; this is a statement of fact. It is a statement of the 
record.
    The initial information of Russian assistance to the Shahab 
Missile came from Israeli agents in 1996. The Israelis felt so 
confident of their information they presented a detailed 
briefing to Mr. Talbott in September or October 1996. Mr. 
Talbott told them not to worry, he had the situation in Russia, 
quote, ``under control.''
    When nothing happened for 3 or 4 months, the Israelis 
presented the same information in more detail to Leon Fuerth at 
the White House in late January, 1997. Mr. Fuerth briefed the 
Vice President, who was reportedly stunned to learn this. On 
February 6th, Mr. Gore raised the issue with Victor 
Chernomyrdin, who protested it was impossible that Russian 
firms were involved in such projects. He demanded that Mr. Gore 
supply him with specific information so he could investigate 
back in Moscow.
    The Vice President provided what the Israelis had given to 
his aide, Mr. Fuerth. The Russians did nothing. Instead, some 
of Israel's best-placed assets on the ground in Russia went 
silent. They lost agents on the ground. Over the ensuing 
months, the Israelis met time and time again with Mr. Talbott, 
who rebuffed them every step of the way. In the meantime, 
Russia and Iran worked overtime to complete the Shahab Missile 
and roll up Russia's intelligence network.
    I have given you much more detail in the written statement, 
but the crux of the matter, Mr. Chairman, is very simple. For 
nearly 2 years, despite having detailed intelligence on 
Russia's involvement with the Iranian Missile programs, the 
U.S. Government failed to press the Russians in any meaningful 
or effective way to stop it.
    If we had intervened with the Russians when the Israelis 
first came to us in late 1996, the Shahab Missile would never 
have been tested successfully 2 years later. It would probably 
still, even today, be on the drawing board. Instead, not only 
have the Iranians deployed that missile, they are now working 
on a much longer-range missile, the Kosar, which is being 
disguised as a satellite launch vehicle. Both of those missiles 
are going to be powered by Russian-built and Russian-designed 
boosters. Ultimately, Russia has far more----
    Mr. Campbell. Mr. Timmerman, I am going to interrupt. The 5 
minutes is up. We have a vote pending. So I think it is fair to 
let Mr. Cannon speak for 5, at least that way he can have his 
opening statement.
    Mr. Timmerman. Let me refer to the conclusions that I made 
in my statement, which are some concrete things that I believe 
this Congress and this Committee can do to rectify the 
situation.
    Mr. Campbell. Indeed. Thank you very much. We will come 
back to you, no question.
    Mr. Campbell. Mr. Cannon.

 STATEMENT OF MARTIN CANNON, MEMBER, BOARD OF DIRECTORS, U.S.-
RUSSIA BUSINESS COUNCIL, AND MANAGING DIRECTOR, CIS OPERATIONS, 
                          A.T. KEARNEY

    Mr. Cannon. Thank you, Mr. Chairman. The U.S.-Russia 
Business Council greatly appreciates the opportunity to testify 
on the issue of U.S. policy toward post-Soviet Russia, and we 
do so from the perspective of the U.S. Business community that 
is involved in the Russian economy. We represent over 250 
enterprises from small entrepreneurs to the Fortune 500 
corporations.
    We don't think Russia is lost. What we think is lost is any 
lingering illusion about the immensity of the challenge of 
transforming Russia into a fully functioning democracy and 
market economy. Your examination of U.S. policy toward Russia 
comes in what we view as only the end of the beginning of a 
longer and more arduous process than any of us anticipated when 
we got involved in Russian business.
    There was, we know, no prediction of the suddenness and 
totality of Soviet collapse. There was no blueprint to guide 
U.S. policy through this extraordinary event. The report card 
on the performance of government and business is not flawless. 
With an impending change of presidents in both countries, we 
need the debate now taking place. With our now substantial, 
accumulated experience in dealing with Russia, we can make it 
constructive and well informed if we so choose.
    Our written testimony lays out comprehensively our largely 
positive view of the record of past U.S. government policy 
toward post-Soviet Russia. It allows, as we all must, for the 
difficulties inherent in dealing with such an unprecedented 
challenge. In these summary remarks, I want to highlight four 
areas with which we believe a constructive debate over past 
policy might yield the most future benefit.
    First, I want to talk about the scale focus and 
effectiveness of programs funded directly or indirectly by the 
U.S. government. The majority of expenditure quite properly is 
focused on issues of security and on the promotion of 
democratic institutions in civil society. A lesser but still 
significant amount has been devoted to the nuts and bolts of 
building a functioning market economy. These include tax 
reform, the development of securities markets, conversion of 
accounting standards and many other areas critical to our 
economic transformation.
    In only 7 years, Russian's political community has shed a 
condition of almost complete ignorance about the nature of the 
market economy and evolved a large measure of consensus about 
economic management, resulting, in several important areas, in 
draft or enacted legislation. Not all the obstacles to economic 
transformation have been overcome, but thanks in large part to 
U.S. and other Western government support, they are far fewer 
today than in 1992.
    Going forward, our accumulated experience raises some 
important and, I think, useful questions. Have we struck the 
right balance between investments and policy prescription and 
investments in enabling infrastructure? Are these programs 
individually or collectively at a critical mass of scale and 
intensity significant enough to bring about lasting change? Are 
we sufficiently willing and flexible to discontinue, initiate 
or modify programs in light of experience? Have we sequenced 
the efforts in ways that maximize their impact? Do they always 
have a political constituency in Russia that is capable of 
driving them to implementation? Should we link the provision of 
new programs more tightly to successful implementation of prior 
ones?
    Let me turn now to the impact of the IMF on the drive for 
economic reform. In 1992, Russia assumed voluntarily 
responsibility for Soviet external debt, now standing in excess 
of about $100 billion. Despite the colossal latent wealth of 
the country that is embedded in its natural resources, the 
Russian government has proved unable to meet those commitments, 
and its public finances are in complete disarray. The effects 
traceable back in some degree to this problem are poverty among 
the dependents of the state, decaying social infrastructure, 
decline in control over nuclear and other military resources, 
further environmental degradation and diminishing public 
confidence in the market model.
    The IMF was not designed to cope unaided with a situation 
of this kind. It does not have the resources to finance the 
Russian government out of it, and it is not equipped to direct 
their strategy for dealing with it. The most it can do it is 
doing: buying time for others to find a solution to the 
external debt problem.
    We believe the policy debate needs to include the question 
of whether the U.S. and other governments of the G-7 should 
take a more direct role in tackling the problem of former 
Soviet debt. Put simply, this issue alone has the potential to 
derail the entire reform effort.
    Third: Crime, corruption and capital flight. We believe the 
culture of lawlessness in much of Russia's economic life is a 
Soviet legacy of abuse of power by those who had it and 
disrespect for authority among those who didn't. We also 
believe that confiscatory tax regimes drive otherwise honest 
businesses and individuals to shelter their resources from the 
state through concealment at home and abroad.
    Mr. Campbell. Mr. Cannon, I apologize, 5 minutes are up. We 
are going to interrupt and proceed as follows. Because we have 
a pending vote, we will not be able to complete the panel 
before a recess is necessary.
    Chairman Gilman has a question he would like me to place 
before you, which I will. I would ask Mr. Waller to answer it 
and to take, if possible, under 2 minutes. I will then yield to 
the Ranking Member. After that, I will then recess. Then as 
soon as Dr. Cooksey comes back, we will be able to reconvene.
    If you gentlemen can stay--is it possible for each of you 
to stay? Thank you. I apologize for having to stick to the time 
limit.
    Mr. Waller, the question--but I would be delighted to hear 
the answer from all three: How corrupt are the highest levels 
of the security and police agencies in Russia today? Do Russian 
police ever work in support of Russian criminal groups?
    Mr. Waller. The corruption is pervasive. There has been a 
problem both in the Interior Ministry, the NVD and the secret 
police, the old KGB, now the Federal Security Service, where 
they are protecting criminal rackets not just at the low level 
but at the higher levels as well, and in the case of the 
Federal Security Service, protecting criminal elements close to 
the Kremlin Administration itself.
    I think what illustrates it is Prime Minister Putin himself 
who, as Federal security chief, earlier this year quashed the 
probes of the people around Yeltsin. He is the guy sitting on 
the information and he is basically sheltering these criminals 
and criminal organizations.
    Mr. Campbell. Mr. Timmerman.
    Mr. Timmerman. I would refer to a statement by a former CIA 
Director, James Woolsey. You can go to Lausanne, Switzerland, 
to a major hotel today and see a Russian with Gucci shoes, a 
Rolex watch, and a $3,000 suit. He can either be, first, a 
member of the Russian Mafia; second, a member of, the foreign 
intelligence services; or third, a Russian cabinet minister. 
Today, he might be all three of those at the same time.
    Mr. Campbell. Mr. Cannon.
    Mr. Cannon. The answer to the first is, more than is 
acceptable; and the answer to the second is, yes.
    Mr. Campbell. The Committee of International Relations is 
recessed pending return of Members adequate to reconvene. Thank 
you.
    I would assume we have a 15-minute vote on now, followed by 
a 5-minute vote, so why don't we assume we will come back at 10 
or probably 5 minutes to 1:00; 5 minutes to 1:00.
    [Recess.]
    Mr. Cooksey. [Presiding.] The Committee will now reconvene. 
We have a smaller group. Now we can really get something done. 
I always enjoy these meetings. I have a little game I play, 
trying to decide who is here from the other government, 
whether, it is China or Iran or Russia. I really would like to 
get them up, but in lieu of that, we will follow standard 
procedure. I am not a real politician, in case you couldn't 
tell.
    Mr. Timmerman, you have written in an article in the 
``American Spectator'' of April 1998 that Gordon Oehler, a 
career intelligence officer who headed the CIA's 
Nonproliferation Center and who had briefed congressional 
Committees on Russia proliferation to Iran, may have been 
forced into early retirement as a result of high-level pressure 
from the Administration.
    Can you back up that allegation or can you explain more, 
sir, give us more detail?
    Mr. Timmerman. Thank you, Mr. Chairman.
    Mr. Oehler provided in 1998 extensive testimony on Russian 
involvement in the Iranian Missile programs. He briefed Members 
of Congress on Russia's involvement in selling gyroscopes to 
Iraq, and these were gyroscopes that had been taken off the SS-
N-18 strategic missiles and shipped to Iraq through clandestine 
means.
    The specific incident that triggered Mr. Oehler's decision 
to leave the CIA came after he testified in public session that 
there was no doubt of the intelligence that China had delivered 
M-11 missiles to Pakistan. Now, this was something that the 
State Department had consistently refused to acknowledge on the 
record. Mr. Oehler was basically told that his department would 
be downsized significantly days after he made that statement on 
the public record.
    So the actual incident was involving China, but he had a 
record of being frank and cooperating with Congress and did not 
earn himself friends in the Administration for that.
    Mr. Cooksey. Thank you.
    Mr. Campbell.
    Mr. Campbell. Thank you, Mr. Chairman. My question, first 
of all, is to Dr. Waller.
    The Shelley e-mail that you appended to your testimony, it 
is possible to interpret that Professor Shelley was pursuing 
something that would be embarrassing to AID and inaccurate. If 
she was silenced because she was critical of AID, that is one 
thing; if she was silenced because she was inaccurate that is 
another. I am trying to make the case that could be used to 
rebut. Namely, the author of the memo, Mr. Bronheim, might say, 
well, we just didn't think she was right. We weren't going to 
have that erroneous patina put upon AID.
    Can you give me any more information about what happened to 
Professor Shelley? What might lead you to believe that she was 
silenced, if you care to or can?
    Mr. Waller. Yes. In fact, maybe Mr. Henderson, who is 
testifying tomorrow, can explain. I haven't consulted with him 
on this. He doesn't even know I attached this, so I might be 
putting him on the spot. But she was right. She was raising 
concerns not to attack AID, but to say, hey, this is a 
problem--we have to undo this problem before it gets worse.
    Mr. Campbell. But were any steps taken with regard to 
Professor Shelley on her contract?
    Mr. Waller. No, she wasn't penalized because she had 
support within the bureaucracy.
    Mr. Campbell. You also said--I am trying to quote close to 
accurately, I hope accurately--that members of State and AID 
were instructed not to write cables concerning crime and 
corruption, and AID contractors were also so instructed.
    Can you give a little specificity to that?
    Mr. Waller. Yes. Wayne Merry and Tom Graham, who were both 
at our embassy in Moscow in the early and mid-1990's, testified 
to that effect either before the Banking Committee or the 
Foreign Relations Committee, and also to Bob Kaiser in the 
``Washington Post'' and elsewhere, so they have been pretty 
open from their own personal experience, especially Wayne 
Merry, about all this. In the August 15th, ``Washington Post'' 
in the Kaiser piece, that is detailed pretty well.
    Mr. Campbell. Thank you. These are my last two questions: I 
don't remember the gentleman's name, but the deputy mayor of 
St. Petersburg was assassinated. I remember he was shot by a 
high-velocity rifle through the roof of his car, that he had 
been identified with fighting corruption. If you can refresh my 
memory--any of the gentlemen--it comes to mind because of Dr. 
Waller's testimony that advocates for reform had been 
assassinated in Russia, and I wonder if that instance which I 
am recalling probably 3 years ago was an example of that 
reality.
    Mr. Waller. I don't know about that particular instance. I 
knew Galina Starovoitova when she was on our editorial board, 
and she was assassinated last November. She was a human rights 
leader and also----
    Mr. Campbell. But that particular incident.
    Mr. Waller. I don't know this particular instance.
    Mr. Campbell. I apologize for not remembering the name. But 
what was remarkable about it was it was a very difficult rifle 
shot that killed him, doing damage to no one else. In other 
words, it had all the marks of professional killing about it.
    Last, Ambassador Morningstar's tenure as our Special 
Ambassador for the Newly Independent States is of interest to 
me. Again, my question is directed to Dr. Waller, but I invite 
Mr. Cannon and Mr. Timmerman, as well, to give me an 
assessment. I believe you had said that he had tried to 
establish a dissent channel. I notice he has been moved, that 
he is no longer in that position. I wonder if you could 
enlighten me as to whether any negative career action was taken 
with regard to him because of his attempt to establish a 
dissent channel or whatever else you could shed on the change 
in personnel.
    Mr. Waller. No. He was there as a troubleshooter, first to 
coordinate and then recognize things that didn't work. It 
wasn't a formal dissent channel that he created, but he wanted 
his office to be used as a place where contractors and others 
could come and speak frankly. Now people in his office said it 
didn't work well because people had to physically go to the 
State Department. But he was the first senior official that was 
really open to this.
    Mr. Campbell. Is your judgment of his tenure a favorable 
one?
    Mr. Waller. I can say he tried in many ways, but in other 
areas I think he was not well served by some members of the 
staff in his office.
    Mr. Campbell. Last, Mr. Timmerman. Incidentally, unless my 
direction be in doubt, I happen to have high regard for his 
work, but I am seeking advice. If you had good things to say, 
they would be welcome; if truth forced you to say less than 
good things, obviously I would receive that as well.
    Mr. Timmerman, your comment about the Shahab 3 having 
Strobe Talbott's name on it is chilling. I wanted to ask you if 
it is your belief that Deputy Secretary of State Strobe Talbott 
knew of the diversion of the technology, whether he could have 
taken steps to prevent it and chose not to.
    Mr. Timmerman. Yes, on both counts, Mr. Campbell. As a 
reporter, I came to this issue first from sources in government 
in the United States and sources in the Israeli military 
intelligence, but I was certainly not privy to the type of 
classified briefings to which Mr. Talbott was privy. I was not 
able to call up the Central Intelligence Agency and ask them to 
look into the case.
    One of the most astonishing things that I found was that 
after Mr. Talbott was initially briefed by the Israelis in 
September or October 1996, he never once asked a question of 
our intelligence agencies until the Israelis came back and 
briefed Mr. Gore through his aide, Leon Fuerth.
    After February 1997, Mr. Talbott was tasked by Mr. Gore to 
deal with the issue directly with the Russians. For the next 6 
months he did absolutely nothing.
    He was aware. He had detailed intelligence from the 
Israelis on the names of companies and the names of individuals 
involved in the transfers to Iran of Russian missile technology 
and did nothing. He never put it at the top of his agenda. He 
never pressed the Russians or used the leverage, the very real 
leverage that we had at that time through Aid programs, and in 
particular, U.S. assistance to the Russian space programs.
    Mr. Campbell. Again, just for the sake of getting the full 
story out, if he were here, he might say he undertook a lot of 
steps, but they were not publicly known. You categorically 
state that he knew, and did nothing.
    On what do you base that judgment?
    Mr. Timmerman. For the first 3 months, I am saying between 
late 1996 and February 1997, absolutely nothing was done. This 
I have from both U.S. Government sources and from Israeli 
sources. Afterward, Mr. Talbott was tasked specifically by the 
Vice President's office and put in charge of dealing with the 
Russians on this issue. He had exchanges with the Russians, but 
he never pressed them. The reason that we know that he never 
pressed them is because it leaked out into the press in 
numerous cases of Russian transfers going to Iran. There were 
customs cases; customs officials in various countries blocked 
shipments. This came out in the press. Mr. Talbott had 
information about those shipments before they were stopped, and 
he never pressed it.
    Mr. Campbell. Thank you.
    Mr. Chairman, thank you.
    Mr. Cooksey. Thank you, Mr. Campbell.
    Dr. Waller, you have written about the bilateral commission 
with the Russian Prime Minister headed by Vice President Al 
Gore, referred to generically as the Gore-Chernomyrdin 
Commission. How influential a role did the Vice President have 
or did he play in U.S. relations under this Administration due 
to his leadership of this commission? That is my first 
question.
    Second question: In a ``Washington Post'' article of August 
the 27th of this year an unnamed advisor of the Vice President 
was quoted as saying Gore clearly chaired this commission, but 
it was Administration policy, not his policy. Do you agree with 
this assessment of the Vice President's role? Basically both my 
questions are directed at Vice President Gore's influence and 
basically his effect on this commission and on our relationship 
with the the Russian Government.
    Mr. Waller. I think he and Deputy Secretary Talbott were 
the two primary players on Russia, Talbott with the big-picture 
approach and Gore on implementing a day-to-day relationship 
with his Russian interlocutors across the board. So he had a 
very strong role. He and his staff were always claiming credit 
for his role and saying that he was so central to it, until 
things started hitting the fan this summer, when they were then 
saying, well, it wasn't just him, it was other parts of the 
Administration. So I think he was happy to accept credit when 
people were crediting him, but sort of shying away from some of 
the responsibility.
    Mr. Cooksey. Another question: Mr. Wayne Merry, a former 
State Department official in Moscow, has written that every 
program or project associated with the commission's meetings 
had to be deemed a, quote, ``success.'' He argues that the 
commission should have been disbanded long ago, making a case 
that it was part and parcel of the Administration's interest to 
have State Department personnel tell, in his words, that its 
policy is a success.
    Do you agree with that assessment?
    Mr. Waller. Yes.
    Mr. Cooksey. So you have no argument with that----
    Mr. Waller. No, argument at all. That is part of the issue 
of my testimony. The whole line across every agency involved 
was to only report successes and to limit or even not report on 
policy failures.
    Mr. Cooksey. Good.
    Mr. Timmerman, in your earlier article for the ``American 
Spectator'' you referred to a ``Washington Post'' profile of 
Deputy Secretary Strobe Talbott, a statement in the article to 
the effect that no career diplomat should think of opposing his 
policy line toward Russia. What, in your view, are the sources 
of Mr. Talbott's influence over policy toward Russia, and does 
the Deputy Secretary have greater influence over policy toward 
Russia than former Secretary of State Warren Christopher or 
current Secretary of State Madeline Albright?
    Mr. Timmerman. I take it you are asking for my opinion, as 
well as what I can base my opinion on, Mr. Chairman. Certainly, 
I think Dr. Waller has testified that other diplomats in the 
U.S. Embassy, Russia, have been overruled by Mr. Talbott. I 
think that is credible information, and certainly from my own 
contacts with the diplomatic community, I think that is true.
    But I do not have firsthand information of how Mr. Talbott 
has played the role inside the State Department. That has not 
been my focus. My focus has been on what he has been doing with 
the Russians vis-a-vis with Iran and vis-a-vis nonproliferation 
and his failure to stop the Russian transfers.
    Let me just point out one other detail which is in my 
written testimony, but it hasn't come out here this morning. 
Mr. Talbott was instrumental in making sure that Yuri Koptev, 
who was the Chairman of the Russian space agency, became the 
principal interlocutor for this Gore-Chernomyrdin process 
focusing on the Russian missile transfers to Iran. It is very 
curious that he would choose Mr. Koptev, because our own 
intelligence agencies had singled out and identified Mr. Koptev 
as the man who was probably most knowledgeable and probably in 
charge of those transfers to Iran.
    Mr. Cooksey. Mr. Cannon, how much influence has the U.S.-
Russia Business Council had in setting the agenda of past 
meetings of the so-called Gore-Chernomyrdin Commission, and how 
do you believe outside organizations can influence the agenda 
of the commission?
    I will repeat that. One, how much influence has the U.S.-
Russia Business Council had in setting the agenda of past 
meetings of the so-called Gore-Chernomyrdin Commission; and 
second, how do you believe outside organizations can influence 
the agenda of the commission?
    Mr. Cannon. Mr. Chairman, the U.S.-Russia Business Council 
has acted as a staff and support of the business dimensions of 
that agenda. It is the logical place to go to get the opinion 
of the U.S. business community that has an interest in Russia. 
A substantial part of the Gore-Chernomyrdin Commission's agenda 
was focused on elements of the program of reform in the 
business environment in which all those companies have a stake. 
So I would say that our issues were advanced. They were, 
therefore, known to the staff and presumably communicated to 
the leadership of the commission, including the Vice President.
    I think the attitude of the member companies in the U.S.-
Russia Business Council was that any exposure of our concerns 
and views on the state of the Russian business economy and the 
priorities as we saw them for its modernization was valuable--
didn't take a huge amount of staff time, didn't feel that it 
was a wasted effort. Have one or two wins to point to in which 
I think it is legitimate to say the Gore-Chernomyrdin 
Commission played a valuable role. Production sharing 
agreements, I think, is probably, in the oil industry, the 
largest single area that we would point to.
    With respect to access for other organizations, I think 
they are very accessible. I think, a lot of these organizations 
frankly lacked, in some areas in the business arena within 
their staff structure, the necessary expertise and perspective 
to be able to operate in an informed fashion.
    As I say, any business that had a particular gripe in the 
way in which its interests were being dealt with by agencies of 
the Russian government would tend to have gravitated toward the 
Gore-Chernomyrdin Commission in search of redress. Whether they 
were successful I don't know. Frankly, I wouldn't have myself 
channeled any concerns that I would have had or any comment I 
would have had through the Gore-Chernomyrdin Commission as the 
sole method of attempting to deal with it. I might do it as a 
pro forma matter to see if anything happened. But I think most 
businesses that have a significant investment in Russia and a 
significant concern would know where to go to deal with any 
problems they have, directly within the government or the 
counterpart businesses that they were dealing with.
    Mr. Cooksey. Good. Thank you.
    I have a personal comment and then a question for the three 
of you. Due to my age and my past time in the military, I still 
have somewhat of a concern about the people that are running 
the government now, because they were all educated in Moscow 
and came with the old Soviet mentality. I feel that past 
political model and that past economic model have been totally 
discredited. But even though I have only been to one city and 
spent about a week there, in St. Petersburg--it is a beautiful 
city, the Russian people I met were wonderful, nice people, 
obviously a lot of them are very bright, well educated--I can't 
help but feel that they are not going to really put their 
country together and have a democracy as a political model, a 
market-driven economy, until this generation is off the scene.
    Do you feel that that is a correct position or is there any 
hope that these people that were educated--part of the old 
problem, maybe midlevel, but still part of the old problem--do 
you think they can be salvaged or salvage the remnants of the 
Soviet Union?
    Mr. Waller. Yes. It has to be a generational approach. 
There are a lot of people in their forties who made good 
leaders in the early 1990's who have been marginalized. I am 
thinking particularly of former Foreign Minister Kozyrev, who 
doesn't have this innate hostility to the West. That generation 
certainly did have power for a while. We chose not to continue 
supporting the ideals that many of those people had and to side 
with the Chernomyrdins and the Primakovs and the others from 
the old Communist Party Central Committee.
    There are more out there, but in Russia, they have always 
learned to talk to survive. Back in the Soviet system, they 
didn't always speak their minds, obviously, because there were 
always consequences to whatever they said.
    Today, there is a similar degree of that where you have 
people who in private may be much more friendly toward the 
United States than they would be in public. I think you can see 
these votes in the Duma, where you have a 420-to-1 vote 
condemning the United States for something. Well, a good 50 of 
those people, at least, are of this generation of people that 
we are talking about, but they don't dare to vote at all, or if 
they do, they will vote with the opposition to the United 
States.
    What has happened now is that our policy of just supporting 
the Kremlin has marginalized people who were formerly allies in 
the government. So now President Yeltsin's main ally in the 
Duma, his most reliable ally, is Vladimir Zhironovsky and his 
Liberal Democratic Party. Now, nobody would have dreamed of 
this in 1992-1993, but that is how it has deteriorated. So it 
is going to take a long time.
    Mr. Timmerman. There is a very disturbing trend inside 
Russia today within the military, within the intelligence 
establishment and in certain areas of the foreign policy 
establishment that are close to former Foreign Affairs Minister 
Primakov--Yevgeny Primakov--who is probably going to be a 
candidate for the presidency. They have a belief that they need 
to counterbalance Russia's declining military capabilities 
especially the conventional military capabilities, by creating 
strategic challenges to the United States and other parts of 
the world. You all remember how the Russian army made that 
terrific midnight dash into Kosovo the same way they had gone 
into Berlin in 1945.
    We have also seen in this Iran and Iraq. For Yevgeny 
Primakov and this particular faction within the security 
establishment, they are consciously pursuing a policy of 
creating challenges to U.S. power in the Persian Gulf. They 
would like to see Iran and Iraq have the military power to 
challenge our presence in the Persian Gulf, and that is a 
policy of the Russian government. I think this is a very 
disturbing factor. This is certainly something that Deputy 
Secretary of State Strobe Talbott should have been focusing on, 
but he is not.
    Mr. Cooksey. Mr. Cannon, and really for all of you, one 
final question from me, What will be the future of Russia if 
U.S. relations continue along the same track, if we don't 
change the policy?
    Mr. Cannon. I think there will be a widening gap between 
the vision and the aspirations of the reform-minded community 
in Russia, which I think consists of far more than a few 
intellectuals with a grasp of free market economic principles. 
I think it extends to a substantial portion of the population 
that intuitively understands that life has the potential to be 
far better in the absence of communism, even if it isn't today. 
I think because of the widening of the gap between aspirations 
that existed in the early 1990's and the belief in what is 
truly possible, given Russia's realities, there will be a 
deepening of cynicism on the part of the Russians about their 
ability to integrate themselves into the value system and the 
economic organizations and to adhere to the terms and behavior 
patterns that are required of members of the OECD and other 
international agencies.
    I believe very strongly that the dual burdens of an 
unmanageable external debt and an unaddressed problem of 
capital flight will render the reform agenda largely irrelevant 
unless they are tackled differently from the way they have been 
tackled over the last 6 or 7 years.
    Mr. Timmerman. Simply put, Mr. Chairman, I think we should 
do what America does best; we should hold high the light of 
democracy and engage directly with the Russian people. This 
Administration has been engaging with the Russian elite and a 
corrupt Russian elite. Our policy should be crafted at doing 
things like encouraging private property. There is still not 
private landownership in Russia after all these years, 10 years 
after the Wall has gone down. We should be crafting policies 
that promote the rule of law and the accountability of public 
officials. Instead, we have just rewarded a corrupt elite.
    Mr. Waller. I think, if current trends continue, we are 
going to find ourselves engaged in finding a Russia that is 
very nationalistic, not in the good sense, but in the very bad 
sense. Scapegoating, worsening problems in the United States, 
blaming the United States, suspecting us for every type of 
subversive intent and then rearming not only places like China, 
but rearming strategic nuclear forces on their own.
    The Chairman of the Duma's international relations 
Committee, Vladimir Luken, who is a voice for moderation there, 
came out the other day and said we are just going to crank out 
more and more of these Topol-M nuclear missiles, and we are 
going to put multiple warheads on them. When you get people of 
that stature and that degree of moderation saying things that 
only the Communists were saying only a few years ago, you know 
we are headed in the wrong direction.
    Mr. Cooksey. Thank you. We appreciate your testimony and 
your participation in this hearing today. It has been very 
informative. Your thoughts and comments I can assure you will 
contribute to this Committee's understanding of the problem. 
Hopefully, the Administration and maybe the House will review 
its policy toward Russia and, in the long run, do what is best 
for the Russian people, for the American taxpayers and for 
everyone that is influenced by these two nations.
    Thank you very much. The meeting is adjourned.
    [Whereupon, at 1:25 p.m., the Committee was adjourned.]

      
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                            A P P E N D I X

                            October 6, 1999

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
```