Only, in the ultimate analysis, Enron's feat must be considered that such
more stunning. After all, it did not happen in a fluid situation of
underdeveloped supervisory agencies ~ and in a country lacking the
appropriate depth in financial management ekille.

The Enron fiasco occurred under the presumably watchful and experienced eye
of the SEC and an army of other highly-skilled professional watchdogs in
the United Sta!

The Enron fiasco occurred right under the presumably watchful and
experienced eye of the Securities and Exchange Commission, independent
auditors, market analysts, credit rating agencies and an army of other
highly-skilled professional watchdogs in the United States.

Despite all these deep layers of professionalism, Enron was able to engage
in the same kinds of activities sported, if not pioneered, by its Russian
counterparts,

Just like Russian oil giants, Enron was able to hide losses and mislead
investors. Of course, one crucial difference was that Russian companies
usually tried to hide profits — in order to keep them from investors and
tax authorities. Enron, by contrast, deliberately overstated ite profits
for a number of years to push up the value of its shares.

Dummy corporations

When trouble started at Enron, its senior managers appear to have sold off
their shares, leaving shareholders — including the employee pension fund -
holding the bag. Enron CFO Andrew Fastow, whose departure prompted the
company's meltdown, set up 4 number of private partnerships on the side,
which did business with Enron while he managed them.

His actions have plenty of precedents in Russia. Take the case of Gazprom's
long-time management team which was investigated carlier this year. It
turned out that the company had routinely guaranteed loans and also made
investments into businesses set up by close relatives of Gazprom senior
executives.

Political ties

In Russia, such practices are often legal — or at least not expressly
forbidden. What's surprising is that in the United States, accountants and
rating agencies managed to maintain silence, or ignorance, about Enron's
practices for so long.

In the United States, Enron's political connections have not saved the
company. Investigations are under way — and a myriad of lawsuits have been
filed.

And legions of U.S. stock analysts were only too happy to tout Enron. They
must have been solidly asleep all along. It should have been a warning to
U.S. mutual fund owners that, in some cases, the analysts pushing Enron's
stocks were the same guys who had promoted Rusaian energy companies just
before the Russian stock market bubble burst in August 1996,

fut the potentially most corrosive aspect of the Enron acandal lies in the
political realm. Russian energy companies have been able to fool investors
largely because they were protected by powerful political connections.
(Viktor Chernomyrdin, the long-serving Prime Minister in Boris Yelstin's
government, had previously been the head of Gazprom. He is rumored to have
become Russia's first billionaire as a result of that connection.)
Political protection for the worst offenders

Hence, it proved very difficult to sue any of the Russian investors in
6

00100000000892


[OUTSIDE SCOPE]

eeeeeee

#10

The Globalist

www. theglobalist.com

December 20, 2001

The Russian Roots of the Texan Mafia

Stephan Richter, Publisher and Editor-in-Chief

During the 1990s, Russian energy companies were notorious for cooking their
books, defrauding their shareholders — and using political connections to
cover shadowy deals. So, readers of Russian newspapers were not at all
surprised over recent stories about an energy giant that was misbehaving in
this manner. What was unusual was that the company in question was Enron —
as quintessentially American as the Texan heartland where it is based.

After the Soviet Union's collapse, the country's centralized oil sector was
among the first to be privatized. In that process, a number of new, private
oil companies sprung up. They 411 boasted vast reserves — and a huge
potential of export revenues.

Avoiding split-ups

Meanwhile, Russia's natural gas industry avoided a split-up. It was neatly
folded into Gazprom, one of the largest natural resource companies in the
world.

Both Mr. Bush and Mr. Putin have one unfortunate thing in common — their
rise to the presidency, at least in part, was financed by non-transparent
energy giants.

Not surprisingly, the fantastic prospects of the Russian energy sector
became one of the leading global investment stories of the 1990s. Foreign
investors rushed headlong into Russia. Eventually, they triggered the
ascent of the Russian stock market, based on such energy blue-chips as
Gazprom, Lukoil, Surgutneft and Tatneft.

And in those heady days of the go-go 19908, many American officials grew
hoarse criticizing Russia's dubious financial management practices and
demanding better disclosure and shareholder protection. Almost inevitably,
most foreign investors ended up losing their money.

Strange similarities

Now let's switch the scenes completely. At least in hindsight, it's uncanny
how such events at Houston-based Enron ended up resembling the story of
Russia's crooked energy giants.

In essence, Russian energy companies lacked transparency and hid
transactions and revenues in a Byzantine accounting system, As we are now
becoming aware, despite its much glitzier and perfectly polished exterior,
on the inside, the shenanigans of Enron senior management echo the 1990s in
Russia.

00100000000891


court. Even if investors win a decision, it's pretty much impossible to
enforce it, Indeed, Russian regulators are too weak to go after them.

In hindsight, it's uncanny how events at Houston-based Enron resemble the
story of Russia's energy giants.

Enron seemed to have banked on a similar formula for success. Its Chairman
and CEO, Kenneth Lay, has close personal and business ties to the Bush
family. As one of the largest and earliest contributors to George W. Bush's
presidential campaign, he “earned” the title of a "pioneer" — as one of
those contributors whose contribution to the President's campaign war chest
exceeded $100,000.

While Mr. Lay himself was considered a candidate for Energy Secretary,
other former Enron executives figure prominently in the Sush
administration. At the Pentagon, Thomas E. White serves as the Secretary of
the Army. Previously, he was Vice Chairman of Enron Enercy Services.

Jail time for offenders?

There are differences, of course. No Russian oligarch has ever been
punished for defrauding investors — or taking minority shareholders and tax
authorities for a ride. On the contrary, most energy companies in Russia
rushed to support Vladimir Putin once he became Russian prime minister in
August 1999.

They also helped finance his subsequent presidential campaign. Since then,
two of the largest energy concerns, Gazprom and Lukoil, helped throttle the
two remaining media groups that dared eriticize the government.

Russian energy companies lacked transparency and hid transactions and
revenues in a Byzantine accounting system — as did Enron.

While Mr. Putin had promised voters to eliminate the oligarchs as a class,
in reality they have become more powerful and wealthier than ever under his
rule. At least, Mr. Putin sent his top assistant to clean up the murky
business affairs at Gazprom.

But in the United States, Enron's political connections have not saved the
company from bankruptcy. Investigations are under way, Congress is looking
closely into the matter — and a myriad of lawsuits have been filed by duped
shareholders.

But despite thie pivotal difference between the United States and Russia,
there is one discomforting parallel. for whatever reason, the rise to

political power is ali too often financed by companies that can only be
characterized as having questionable accounting practices.

[OUTSIDE SCOPE]

v7

00100000000893


{OUTSIDE SCOPE]

fla
Bush Seeka to Help End Warfare in O11-Rich Caspian

Washington, April 9 (Bloomberg) -- President George W. Bush told the
leaders of Azerbaijan and Armenia the U.S. will do all it can to help thes
end their border conflict, two senior Bush administration officials said.

For the Bush administration, which has signaled a reluctance to engage in
hands-on negotiations in the Middle Bast, the Koreas and elsewhere, today's
talks capped a weeklong effort personally begun by Secretary of State Colin
Powell to bring peace to the central Asian territory of Nagorno-Karabakh.

Azerbaijan, Armenia and the surrounding area contain the potential for as
much as 200 billion barrels of oil that may be worth more than $4 trillion,
and natural gas reserves larger than those in all of North America. Chevron
Corp. ia leading a proposed $2.5 billion Azerbaijan-to-Turkey pipeline
project.

00100000000827


“"The U.S. realizes today that more than ever, the region of the south

the Caspian region, is of great importance to the strategic

te of the United States,'*' said Blin Suleymanov, a spokesman for the
Azerbaijan embassy in Washington.

In separate meetings with President Heydar Aliyev of Azerbaijan and Robert
Kocharian of Armenia, Bush praised their efforts to resolve their
differences, the two U.S. officials told a reporters' briefing.

The two sides have agreed to meet again in June in Switzerland to make
further progress toward an accord id the Bush officials, who
participated in today's discussions. The peace process dominated the
meetings, with oil and energy ancillary issues, the two aides said.

Thousand-Mile Pipeline

““There are a lot of energy resources in the region, but these meetings are
going to be very short'* and will focus on peace talks, another aide,
National Security Council spokeswoman Mary Ellen Countryman, said earlier
today.

The proposed 1,000-mile pipeline would run from the Azerbaijani capital
Baku through the Georgian capital Tbilisi to the Mediterranean port of
Ceyhan in Turkey, a North Atlantic Treaty Organization ally of the U.S.

Several top Bush administration officials have ties to major petroleum
companies, including those with interests in the Caspian region. That,
along with creating a model for resolving other ethnic-based land disputes
in the former Soviet Union, may be driving U.S. involvement in the
Armenia-Azerbaijan dispute, participants and analysts said.

““t would think ofl was, in part, behind it all,'’ said Robert Ebel,
director of energy and national security affaires at the Center for
Strategic and International Studies, a Washington, D.C., think tank.

Business Concerns

““This is not a problem area of the world that we should shy away from,''
Willard Workman, vice president for international affairs at the U.S.
Chamber of Commerce, said of the Nagorno- Karabakh conflict. “We think
that we ought to at least devote as much as an effort there as we did the
Middle East.'*

Oil industry ties permeate the administration. Bush followed his father
inte the Texas oil business years before following him into the White
House. Vice President Dick Cheney previously served as chairman and chief
executive of Halliburton Co., the world's largest oilfield services company.

Halliburton has operations in Azerbaijan and has bid for work on the
Pipeline to Turkey. The U.S. government has worked to convince U.S.
companies to support the pipeline, wanting a transportation route from the
Caspian oil fields that bypasses both Russia and Iran.

Tanker's Namesake

Other top Sush officials and advisers with oil industry connections include
national security adviser Condoleezza Rice, who was on Chevron's board of
directors from 1991 until January of this year, and has a company oil
tanker named after her.

The law firm of former Secretary of State James Baker, a Bush family

adviser, represented several oil companies with interests in Azerbaijan,

among them Exxon-Mobil Corp, Brent Scowcroft, a Rice adviser who was

national security adviser in the administration of Bush's father, has

industry connections that include sitting on the boards of Pennzoil-Quaker

State Co, and Enron Global Power & Pipelines, a unit of Enron Corp. Deputy
v

00100000000828


Secretary of State Richard Armitage is a former co-chairman of the
U.S.-Azerbaijan Chamber of Commerce.

The fighting in Nagorno-Karabakh, between the Caucasus and the Karabakh
mountain ranges, stems from efforts by an ethnic Armenian majority to
secede from Muslim-majority Azerbaijan in 1988. The initial warfare cost
thousands of lives and left 1 million homeless. The sides reached a general
cease-fire seven years ago, and now about 200 people die each year in
continued skirmishes.

Economic Incentive

U.S. officials wouldn't describe the talks in detail, although Suleymanov
said a settlement likely will involve conditions in which Nagorno-Karabakh
remains part of Azerbaijan with political autonomy for the ethnic Armenian
majority.

Both countries have scaled back the level of fighting and appear ready for
4 settlement, in particular because they recognize the economic benefits it
would bring, said Ariel Cohen, a specialist on Russia and the Caucasus at
the Heritage Foundation, a Washington research group.

Azerbaijan also faces a general cut-off in U.S. foreign aid. Aliyev is
about 80 years old and wants the legacy of peace agreement, while the Bush
administration @ & potential early foreign policy success, Cohen said.

““This is an area that probably some progress can be achieved and = think
we can score some points,'*’ Cohen said.

Powell's talks between Aliyev and Kocharian were held last week at U.S,
government-owned property in Key West, Florida, once used by President
Harry Truman.

“We're very impressed and very grateful that the U.S. administration has
made thia one of its pricrities,'' Suleymanov said. ““That's important,
that's encouraging.''

David Johnson

work phone: RYN sa77

email; davidjohnsongerols.com
fax: 1-202-476-1701 (Jfax; comes direct to email)
home address:

[(o)(6)}

Web page for CDI Russia Weekly:
http://www.cdi.org/russia

Archive for JRL (under construction) :
http: //www.cdi.org/russia/johnson

18

00100000000829