Issue #16/71, August 12 - 26, 1999  

by Matt Taibbi

I got a letter from a reporter in town a few weeks ago, all in lower-case:

"Hey! the new york times finally wrote a massive article about fimaco, i'm pretty sure their first ever. they skedded publication of this article for at least a week, but kept eliminating it from the sked. the DAY AFTER the imf money is approved, they publish it. what's up with that??"

That's what you'd normally call bad timing. It's a little bit like releasing your big-budget action movie a day after Phantom Menace comes out. You're dooming yourself at the box office in advance. More to the point, it's a little like waiting until after the election to run a photo of a candidate in bed with a pair of altar boys.

Exposes are like any object-- they have both potential and kinetic energy. You can raise the potential impact of a dropped rock by carrying it up the stairs; the potential impact of an expose rises and falls according to the timing of its release. Part of any editor's job is to time the release of his expose appropriately. This is often a political decision on his part. If, for instance, he thinks that the expose is going to have a disproportionate and inappropriate effect on its subject if it is released at a certain time, he might hold it until its release will have the desired, i.e. lesser impact. For instance, if one of his reporters turns up a photo of a gubernatorial candidate shopping in the bondage section of a local adult video store, a judicious editor might sit on it until after the polls, or even indefinitely, if he thinks a man's taste in porn has no business being an issue in a serious election.

That being said, judiciousness could not possibly have been a factor in any decision to hold an expose on FIMACO. There can't be any argument that taxpayers should have to wait until their money has already been given away as aid to learn that their last "loan" was used by a bunch of fat Russian bankers as front money for an insider-trading scheme. The story of the Russian Central Bank's use of the Jersey Island-based Financial Management Company, or FIMACO, is a genuine scandal worthy of the loudest and most alarmist expose possible. In a world where money matters as much as it does, FIMACO is a fire in a crowded theater. You don't wait to sound the alarm bell. You do it immediately, and at the top of your voice.

The New York Times did neither. Its FIMACO report by Celestine Bohlen was not only late, it read like an astonishingly clumsy whitewash job. One comes away from reading the report thinking that nothing more serious than the breaking of a few internal bank rules took place-- and not the shameless maruading of international aid money for personal profit, which is what FIMACO almost certainly was all about.

Bohlen's first mistake comes in paragraph three of her piece, which is the first mention of violations linked to FIMACO:

"That Jersey company, known as Fimaco, has for months been the center of a controversy that has tantalized the bank's many critics, inside and outside of Russia. Although recent investigations by Russian prosecutors and international auditors have found no criminal violations in the central bank's dealings with Fimaco, many experts say the operations definitely skirted the edge of normal central bank rules and ethics and effectively deceived the I.M.F."

Bohlen here leaves out three key facts. 1) The prosecutor who made FIMACO public, Yuri Skuratov, was quickly stripped of influence soon after he outed the scheme, leaving the criminal investigation in the hands of pro-Yeltsin loyalists 2) The "international auditor", not "auditors", who looked into FIMACO, PricewaterhouseCoopers, was hired by the suspect, the Central Bank, and 3) While no criminal violations have so far been found, they are widely suspected to have taken place by most rational observers.

Regarding this last point, I called one of the sources Bohlen quoted in her piece, Central Bank critic Duma deputy Nikolai Gonchar. When asked about suspected criminal violations in the FIMACO matter, a spokeswoman for his office said the following:

"No, they haven't found any criminal violations. But we feel they certainly would have, if they had been looking."

Chief among the suspected criminal violations tied to FIMACO would be violations of the insider-trading laws (the Central Bank is barred from manipulating the price of its own debt instruments for profit), and embezzlement of the still-unaccounted-for massive profits from the invested monies.

To recap the story in brief, the Russian Central Bank in 1991 opened FIMACO, a small investment company in the Channel islands-- an area well-known for its money-laudering-friendly banking laws-- and began to secretly funnel Russia's reserves into its accounts. Eventually, much of the money in FIMACO was secretly re-routed back into Russia after it had been used to purchase short-term Russian treasury notes, or GKOs. The profits from those transactions have yet to be accounted for. Billions of dollars were washed through FIMACO, and GKOs during much of this period offered returns of up to 200 percent. One can imagine just exactly how much money might be missing.

It's too bad the New York Times doesn't miss it. Although she gave Gonchar a decent amount of space to wonder aloud where the missing money might be, Bohlen goes to fantastic lengths to avoid the suggestion that the money might simply have been-- God forbid!-- stolen. To read Bohlen's piece, one would guess that embezzlement is the kind of thing which just doesn't happen in Russia. What follows is a verbatim list of Bohlen's educated guesses as to where the money might be:

1) "Some suspect that the real purpose of this operation in 1996 was to generate money for the Russian Government, then caught in a web of election year promises given by President Boris N. Yeltsin. To general relief in the West, Yeltsin won a second term."

Note the language here. No phrases like "funds from FIMACO may have been used to illegally fund Boris Yeltsin's 1996 election campaign, which has already been reported as having exceeded legal spending limits." In Bohlen's version, FIMACO money might have been used to do the good deed of simply helping an overenthusiastic Yeltsin keep an excessively multitudinous list of campaign promises. And why include the phrase "to general relief in the West, Yeltsin won a second term"? It's hard to interpret that phrase as meaning anything other than, "If it turns out that this is how they used the money, then it's no big deal because the end justifies the means-- after all, we wanted Yeltsin to win."

A note here on the New York Times in general. Part of the paper's style is its obliqueness; even when it is airing a truly savage expose, it refers to its subjects using the prim and proper titles "Mr." or Mrs.", and as a complement to its annoying small print and colorless headlines, it generally prefers that its text be read against a background of mental quiet, without either a laugh track or any symphonic verbal fanfare. In other words, if the New York Post writes "Rough Sex Killed Jenny!", the Times is likely to counter with a paragraph-long quote from a forensic pathologist which concludes, minus any follow-up commentary, "...it is not inconceivable that the victim hoped to attain further satisfaction through asphyxiation."

What I'm trying to say is that it is entirely possible that Bohlen's passage here about the possibility that FIMACO helped fund Yeltsin's campaign might actually have been the Times's typically oblique way of of suggesting that the West improperly turned, and continues to turn, a blind eye to a rigged election. If that's the case, it's a pretty pathetic passage. Give me the Post any day, if this is the way the "world's greatest newspaper" is going to make its best case against corruption.

Bohlen goes on to speculate further:
2) "Others have guessed that like any elaborate plumbing system, this one was bound -- maybe even designed -- to leak, in the form of commissions, risk margins and other profits collected along the way."

Again, if this is the way Bohlen is going to suggest that Central Bank officials stole their money, that's pretty fucking sad. "Commissions"? "Risk margins"? "Other profits"? What fucking commissions and risk margins and other profits? If you can't bring yourself to make a specific accusation of theft, that doesn't mean you should offer a series of unspecific exculpatory arguments in its place. The Times's lawyers may have decreed the former-- but it's Bohlen and her editors alone who chose to stick in the latter, and it's inexcusable. Furthermore, what does Bohlen mean when she writes "like any elaborate plumbing system, this one was bound...to leak"? Does that mean that if $5 billion disappears from the U.S. Federal Reserve Bank, we should all just shrug and say, "It was bound to happen"?

Bohlen goes on:
3) "There may have been other reasons, such as avoiding taxes or simply a chance to test unorthodox financing mechanisms required by Russia's shallow and fragile debt market."

Jesus, I'm just wincing reading this. "A chance to test" unorthodox financing systems? Bohlen lives here-- she must have a pretty good idea that when Russian bureaucrats start shuffling around billions of dollars into secret offshore accounts, they're probably not just testing the piping, so to speak. And how can anyone say that unorthodox financing systems are "required"? Is Bohlen suggesting that the Central Bank HAD NO CHOICE but to lie to the IMF and improperly route billions of dollars into secret offshore investment funds? That's as ridiculous, more ridiculous even, than the claims many Western reporters made for years that loans-for-shares was excusable because, in the fight against socialism, there was "no alternative" to giving away billion-dollar industries to a handful of mobsters.

Bohlen's first three excuses were entertaining, but the fourth is the real kicker:
4) "The central bank of Russia was more creative than others," said a Russian banker familiar with the central bank's operations. "There were a lot of young people working there, with very good brains." In those years, he said, the central bank's main goal was not to generate profit for itself, but to control a shaky G.K.O. market, and bring down the dizzying rise in yields."

Okay, let me get this straight. An excess of creativity was responsible for FIMACO? What is this, the financial version of the Physical Graffiti album? Beyond that, Bohlen wants us to believe that this whole thing happened because a bunch of bespectacled whiz-kids (I was amazed that they weren't described as "Harvard-trained" young people) got carried away with some adolescent fund-raising ideas? GIVE ME A FUCKING BREAK! It's shocking that the Times underestimates our intelligence to this degree. Bohlen here continues to ignore the fact that all that money is still missing. If all that those young whippersnapper bankers were trying to do was bring down yields, then where's the rest of that money?

This last passage by Bohlen is truly pathetic. The Central Bank's own excuse for FIMACO was that it was "testing" the mechanism for foreign investment, and that itself was incredibly lame on its face. But Bohlen here has one-upped even those bankers. She has offered up a lamer excuse than the one offered by the guilty themselves-- that the bank was simply too smart for its own good. Sergei Dubinin and Viktor Geraschenko are extraordinarily shameless people and have proven as much in public many times over the years, but even they have more shame than to offer an argument like this as a defense for FIMACO. They won't do it, and yet, they're the ones who have something to gain from doing it. Which begs the question-- why is the Times doing it? Why is the most influential news outlet in the world publishing an article that all but openly wishes the FIMACO scandal away?

Well...I've got some theories on that score, but in the interest of not being too publicly paranoid, I won't get into them. Incidentally, I called Bohlen and asked her both why her piece was held up and, if she was upset that it was late-- and she answered that, in fact, it wasn't late, and she wasn't upset. "You're barking up the wrong tree here," she said.

Am I? What tree am I barking up? Jesus Christ. Start doing your job, and I'll stop barking up your fucking tree.