[Congressional Record (Bound Edition), Volume 153 (2007), Part 27]
[Extensions of Remarks]
[Pages 36474-36475]
[From the U.S. Government Publishing Office, www.gpo.gov]




     THE ECONOMIC RELATIONSHIP BETWEEN THE UNITED STATES AND RUSSIA

                                 ______
                                 

                         HON. LUIS V. GUTIERREZ

                              of illinois

                    in the house of representatives

                      Wednesday, December 19, 2007

  Mr. GUTIERREZ. Madam Speaker, I rise today to express my concerns 
about the economic relationship between the U.S. and Russia, and to 
once again call on the Bush Administration to exert pressure on Russia 
to ratify its Bilateral Investment Treaty with the U.S.
  In October I chaired a hearing in the Domestic and International 
Monetary Policy, Trade and Technology Subcommittee on the U.S.-Russia 
economic relationship as it relates to the financial losses U.S. 
shareholders suffered as a result of the dissolution of the Yukos Oil 
Company. During the 1990s, Yukos was not only the largest private 
company in Russia, it was also a model of corporate governance that set 
an early example for other Russian companies entering the global 
market. Its chairman, Mikhail Khodorkovsky, was well known in the U.S. 
and Europe for his leadership in helping Russia make the transition to 
a market economy.
  But the Yukos Company's vast energy resources and Mr. Khodorkovsky's 
Western leanings proved too much for Kremlin operatives eager to assert 
state control over the energy sector and discipline Russian businessmen 
who supported opposition parties.
  In what was widely reported by major news publications at the time, 
Russian authorities used arbitrary and possibly extralegal means to 
dismantle Yukos and redistribute $100 billion of its assets to state 
companies overseen by the Kremlin. At the end of the day, American 
investors in Yukos lost somewhere between $7 and $12 billion and Mr. 
Khodorkovsky, convicted on trumped up tax charges, was condemned to a 
penal colony.
  Quite simply, U.S. and other would-be foreign investors need to know 
whether the rule of law will be upheld in Russia. And the Bush 
Administration needs to be motivated to start asking the Kremlin some 
tough questions when it comes to protecting the interests of U.S. 
investors.
  From a Russian perspective, instances like the Yukos situation will 
create an uncertainty among potential investors, which could result in 
a substantial loss of investment and impede Russia's integration into 
the global economy.
  In a December 12, 2007, article in the Washington Post, Dr. Anders 
Aslund of the Peterson Institute for International Economics writes 
that the Yukos incident, ``unleashed a great wave of renationalization 
in the post-communist world,'' and that the men in the Kremlin are, 
``taking over one big, well-run private company after another, turning 
them into less efficient state-owned firms.''
  In support of his assertions, Dr. Aslund mentions Leonid Reiman, a 
former KGB official, who is now Russia's Minister of Communications, 
while still controlling $8 billion in personal telecommunications 
assets.
  The United States and Russia signed a Bilateral Investment Treaty 
(BIT) in 1992 but the treaty has not been ratified by Russia. 
Ratification of the BIT would provide protection for U.S. investors 
against the types of actions taken by the Russian government in the 
Yukos case.
  The failure of Russia to ratify the BIT, has been a key weakness in 
the U.S.-Russia economic relationship. Compared to investors from many 
other nations, U.S. investors are at a disadvantage. For example, 38 
countries--including France, Germany, Ireland, Italy, Spain and the 
U.K.--have concluded bilateral investment treaties with Russia that 
have also been ratified. The presence of these treaties allows Yukos 
shareholders from these countries to sue the Russian government, but 
that option is not available to U.S. shareholders.
  I want to again call on the Bush Administration to persuade Russia to 
ratify the BIT. By ratifying the BIT, President Putin would send a 
strong message to U.S. investors that investing in projects in Russia 
is safe, and that the Yukos situation is the exception, not the rule.
  Madam Speaker, I recommend to my colleagues Dr. Aslund's article in 
the Washington Post of December 12, 2007, and I request that the 
article be printed in the Congressional Record.

                         Russia's New Oligarchy


         For Putin and Friends, a Gusher of Questionable Deals

                          (By Antlers Aslund)

       The news that Dmitry Medvedev, Vladimir Putin's nominee to 
     succeed him as president, wants Putin to become prime 
     minister of Russia next year opens one option for Putin to 
     retain power after his term ends. Putin has little choice but 
     to stay in power as long as he can. -
       A year ago, a famous Russian journalist asked me: Is it 
     true that Putin has a net fortune of $35 to 40 billion?'' 
     (This journalist, of course, has long been excluded from 
     Kremlin-controlled media.)
       This fall, the respected Polish magazine Wprost published 
     its annual response to Forbes, its list of the richest people 
     in Eastern Europe. Besides the well-known business 
     executives, there is Gennady Timchenko, a little-known 
     character with a purported fortune of $20 billion. A small 
     oil trader who resides in Geneva, Timchenko is from St. 
     Petersburg, where he belongs to the same luxurious dacha 
     collective as Putin.
       I first heard of Timchenko in February 2004. Ivan Rybkin, a 
     Russian politician who audaciously opposed Putin in the 
     presidential election that year, claimed that Putin was ``one 
     of Russia's biggest oligarchs'' and that he operated through 
     three middlemen, including Timchenko. Rybkin charged that the 
     Putin-Timchenko group was gobbling up the embattled oil giant 
     Yukos. He swiftly disappeared under mysterious circumstances 
     and after he reemerged, was forced to suspend his campaign.
       Indeed, the privately owned Yukos oil company has been 
     devoured by the state-dominated Rosneft, whose chairman is 
     Igor Sechin, Point's closest adviser and collaborator. The 
     confiscation, which began in 2003, was publicly justified 
     with not-very-credible citations of tax violations. Rosneft's 
     gain was probably about $100 billion in Yukon assets. U.S. 
     investors in Yukos have lost at least $7 billion; some claim 
     the figure is as much as $12 billion. In October, the House 
     Financial Services Committee's subcommittee on domestic and 
     international monetary policy held a hearing on this, at 
     which I testified.

[[Page 36475]]

       The Bush administration, however, has not protested this 
     outrageous confiscation of private American property. Then-
     Secretary of State Colin Powell expressed strong support for 
     Putin in October 2004: ``The Russian people came out of the 
     post-Soviet Union era in a state of total chaos--a great deal 
     of freedom, but it was freedom to steal from the state and 
     President Putin took over and restored a sense of order in 
     the country and moved in a democratic way.'' Putin 
     appreciated--and might have been encouraged by--these words. 
     Two months later, Yukon's main oil field was sold to Rosneft 
     in an auction that Putin's economic adviser, Andrei 
     lllarionov, called ``the scam of the year'' (for which he was 
     sacked). U.S. shareholders in Yukos have come to realize that 
     the United States has no single valid agreement that 
     safeguards their property rights; European investors, though, 
     can sue the Russian state under three treaties.
       The Yukos confiscation has not cost Putin anything. In 
     fact, he unleashed a great wave of renationalization in the 
     post-communist world. His chums from St. Petersburg are 
     taking over one big, well-run private company after another, 
     turning them into less efficient state-owned firms. One of 
     Putin's close friends from the KGB, Leonid Reiman, is his 
     minister of communications. Last year, an independent 
     arbitration court in Zurich ruled that Reiman, despite his 
     denials, was the real owner of Russian telecommunications 
     assets currently valued at on less than $6 billion. Reiman 
     has amassed this extraordinary fortune as a state official, 
     partly through beneficial privatizations, partly through 
     privileged licenses issued to his companies. A government 
     with any standards would fire such an official, but Putin 
     suppressed this negative information within Russia and kept 
     Reiman on, showing that he accepts corruption.
       The Russian daily Kommersant published a long interview 
     with Russian businessman Oleg Shvartsman on the eve of the 
     recent Duma elections. Sensationally, he described how he 
     raided private enterprises to the benefit of KGB officials 
     described his activity as ``velvet reprivatization.'' Kremlin 
     spokesmen have denied the report.
       Even more striking was an interview last month with the 
     Kremlin-connected Russian political observer Stanislav 
     Belkovsky in the German daily Die Welt. Belkovsky, who 
     initiated the Kremlin attack on Yukos, claimed that Putin 
     controlled specific shares of three companies 
     (Surgutneftegaz; Gazprom; and Gunvor. Timchenko's company) 
     worth some $40 billion. Putin has not commented on this 
     allegation.
       According to Transparency International, Russia is growing 
     more corrupt even as most other post-communist countries are 
     controlling their corruption. The fundamental dilemma for 
     Russia, and Putin, is that a system so corrupt cannot be very 
     stable. It's less clear why President Bush does not call 
     Putin out on this or even defend the interests of U.S. 
     citizens and corporations.

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