CAPITALISM'S ACHILLES HEEL Dirty Money and How to

152 CAPITALISM’S ACHILLES HEEL
in stripping the wealth of the state. Using the standard package of falsified
trade documents, offshore subsidiaries, dummy corporations, and disguised
bank transactions, Russians relied on active cooperation or benign
neglect emanating from western corporations and financial institutions to
facilitate virtually the whole of this lawless transfer. Through much of the
1990s, Moscow was crawling with foreigners helping set up schemes to
shift money out of the country.
The underpricing of exports from Russia has gone through three phases.
First, in the late 1980s and early 1990s, the assets of the Russian state were
being taken over by entrepreneurs, the richest among them later called oligarchs.
During this period exports of oil, gas, gold, diamonds, aluminum,
nickel, tin, zinc, pulp, timber, and other resources were sold primarily to European
buyers, and, in many if not most cases, kickbacks were paid into corporate
and personal accounts of the Russian exporters in Switzerland,
Germany, France, the United Kingdom, Spain, Cyprus, and elsewhere.
While such arrangements were very cozy, Russian exporters soon figured
out that they would prefer to control the whole of the fleecing process,
rather than rely on cooperation from buyers abroad. Thus was ushered in
the second phase of mispricing, with Russian firms setting up their own offices
in Europe to buy their own exports and then resell to foreign buyers.
When you are buying from yourself, you can pay any price you want. Hundreds
of subsidiaries and affiliates of Russian companies sprang up in Europe
and the United States. Exports were sold to these entities at cheap prices and
then resold to foreign buyers at world market prices. Take oil, for example.
Russian oil priced for sale internally at $10 a metric ton was instead sold to
the exporter’s foreign subsidiary at $10 a metric ton and then resold to foreign
buyers at the world market price of $120 a metric ton. 209 In such cases,
the $110 per metric ton profit margin was kept entirely in the bank account
of the foreign subsidiary. In some cases, even the $10 domestic price was not
remitted back to Russia, meaning that 100 percent of the revenues from
such exports were kept out of the country and nothing was brought back.
This process, particularly in handling oil and gas exports, accounted for
hundreds of billions of dollars disappearing permanently out of Russia.
The third and current phase of trade mispricing started around 1997
when the Russian Central Bank began modestly enforcing regulations on remittance
of foreign earnings. At this point, retention abroad of 100 percent
of export proceeds became more difficult. Russian exporters settled into the