CAPITALISM'S ACHILLES HEEL Dirty Money and How to

160 CAPITALISM’S ACHILLES HEEL
Could the West have done anything to curtail the deterioration of Russia’s
economy from, say, 1995 or 1996? Yes. Nonremittance of export proceeds
was the most frequently and blatantly used technique for stripping
Russia of wealth. A centuries-old instrument is readily available to deal with
this problem, to assure that export proceeds are brought back: the confirmed,
irrevocable letter of credit. This is an arrangement between two
banks, one representing the buyer and the other representing the seller. In
the simplest illustration, the buyer’s bank opens a letter of credit guaranteeing
payment to the seller’s bank for the shipment upon arrival. That letter of
credit is confirmed to the seller by the seller’s bank, guaranteeing payment to
the seller. In other words, two banks step in between, and, on the strength of
the credit rating and reputation of the buyer’s bank, usually in Europe or
North America, the banks assure that payment for the shipment will be remitted
to Russia and will be deposited to the seller’s account.
Who should have insisted on adoption of such standard commercial
norms by Russian exporters? Certainly the IMF, in its loan negotiations with
the Russian government, had the capacity to do so. In its inimically diplomatic
manner, the IMF should have raised the issue in one meeting, asked
for a working plan requiring export letters of credit in a second meeting, insisted
on adoption of L/C procedures in a third meeting, and withheld the
next tranche of loans in a fourth meeting.
Russian businesspeople and bankers did not invent any new ways of taking
illegal money out of their country. They simply stepped into well-established
techniques and channels. At the same time, equally well-established instruments
could have curtailed—not stopped, but sharply curtailed—the long-term damage
being done to the Russian economy, damage that may take a generation or
more to recoup, damage that postpones, if not imperils, democratic capitalism
in the country well into the twenty-first century.
With Russia I conclude Chapter 3, “Dirty Money at Work.” For each
tale presented, many others are available and many more may emerge in the
future, every one unique and at the same time illustrative of a disturbing
global pattern.
I set out in this chapter to paint a word picture of criminal, corrupt, and
commercial dirty money, some of the damaging impact these illicit flows
have on developing and transitional economies, and the active participation
of western countries in promoting and facilitating the fullest possible range