WASHINGTON (AP) -- The Clinton administration told Congress today
that the United States must continue to support Russia or risk
being branded as "scapegoats" for Russia's failure.
But in the wake of what may be the biggest money-laundering
scheme in U.S. history, Treasury Secretary Lawrence Summers said
the administration will propose to strengthen laws and make it
tougher for foreigners to clean ill-gotten gains through American
Summers was the leadoff witness as Congress opened the first of
a series of inquiries into allegations that Russian gangsters
illegally channeled billions of dollars through the Bank of New
The administration backs continued support for Russia in spite
of these allegations because "to quarantine, contain or write off
Russia as too corrupt would ill serve our national interest,"
Summers told the House Banking Committee.
"Acting on that view would limit our ability to support Russian
economic and financial stability; it would inhibit our ability to
promote democratization and it would raise the risk that the United
States and the West would be labeled as scapegoats for Russia's
failure to address its problems," Summers said.
U.S. investigators have not commented publicly on the case, in
which as much as $10 billion allegedly was funneled through the
Bank of New York, the 15th-largest U.S. bank.
Two high-level executives of the bank's Eastern European
division, Natasha Kagalovsky and Lucy Edwards, were suspended, and
Ms. Edwards was subsequently fired for alleged falsification of
bank records and failure to cooperate with internal investigators.
The two have denied any wrongdoing.
The issue has become a political flash point between Washington
and Moscow and prompted Republican leaders to denounce the Clinton
administration's policy of supporting aid to Russia.
But Summers stressed to lawmakers today that the administration
must weigh the need to remain engaged with Russia, with its huge
arsenal of nuclear weapons, while demanding reforms.
He said the International Monetary Fund, at U.S. urging, has
already acted to make sure the billions in loans provided by the
West are used for legitimate purposes.
He noted that Russia's current $4.8 billion loan program is
being provided in such a way that Russia can use the money only to
pay back previous IMF loans. None of the money will be disbursed
unless the IMF is satisfied that the Russian central bank has put
in place adequate controls on foreign assistance.
Summers said that Thursday the administration will release a
number of proposals to bolster international cooperation in
investigating money laundering and strengthen U.S. enforcement
through tighter regulation of financial institutions.
The report will call for Congress to make money-laundering laws
applicable to a broad range of international criminals, including
corrupt foreign officials, Summers said, and broaden the
requirements for filing suspicious-activity reports to cover not
only banks but also money service businesses, security brokers and
Today, the Swiss government announced that Swiss banks have
frozen $16.8 million in accounts suspected to be linked to the
Russian case. A 1998 law requires banks to take such action and
report to the government when they have well-founded suspicions of
Russia now owes some $16 billion of the $22 billion that the
182-nation IMF has lent it since 1992. The IMF board is expected
soon to consider approving a second, $640 million installment under
a $4.5 billion loan package for Russia that was previously
Russian President Boris Yeltsin received Nikolai Patrushev, head
of the Federal Security Service, today at his country residence for
talks on the money-laundering investigation.
Yeltsin has not commented publicly on the expanding scandal,
though the Kremlin has issued statements denying any wrongdoing by
A Russian delegation traveled to Washington last week, and both
countries agreed to investigate the matter and compare notes,
Patrushev told Yeltsin.
Viktor Ivanov, deputy head of the Federal Security Service,
Russia's main intelligence agency, said Monday that U.S.
investigators have presented no evidence that money from the IMF or
other international agencies was involved in money laundering.
Nor was there any evidence that high-level Russian officials
were involved, said Ivanov, who headed the Russian team of Russian
investigators who met in Washington last week with FBI Director
Louis Freeh and other officials.
But Ivanov on Monday said that U.S. investigators have material
suggesting Russian businesses laundered money through the Bank of
New York, apparently contradicting Russian Prime Minister Vladimir
Putin, who said earlier Monday that the visit produced no evidence
of Russian money being misdirected.
Ivanov's remarks also contradicted his own comments last week in
Washington. Russian officials have been saying the case has been
overblown by Western media and politicians.
Bank of New York spokesman Cary Giacalone declined to comment on
the latest statements from Ivanov. He repeated the bank's previous
position that it has not been accused of any wrongdoing and
declined to comment on the ongoing investigation into