Soviet Crackdown Watch (Part 8): Gorbachev Garrotes Western Business in the USSR

(Washington, D.C.): As part of its
continuing effort to monitor the
dimensions and character of the widening
Soviet repression against the genuinely
pro-democratic and free market forces
inside the USSR, the Center calls special
attention to evidence that the Gorbachev
regime is taking steps which will add
opportunities for Western businesses to
the list of victims of his crackdown.
Such evidence prompted Business Week
last week to entitle its cover story
about economic developments in the Soviet
Union “Shattered Dreams.”

• On 26 January, Gorbachev issued a
  decree “On Measures
  to Combat Economic Sabotage and
  other Economic Crimes,”
  granting sweeping new powers to
  the KGB to search at will private
  businesses, including foreign
  banks and joint ventures
  operating in the Soviet Union.
  Among other things, the decree empowers
  the KGB to “gain free access
  to facilities of enterprises and
  organizations,” to obtain
  documents from these
  organizations “regardless of
  ownership and supervision
  arrangements, including joint
  ventures.”
• Alexei Kandaurov, the KGB’s
  deputy spokesman, explained that
  the measure was necessary because
  Soviet cooperatives and joint
  ventures “are engaged
  in, to put it mildly, not
  very lawful business,”
  according to the 6 February Financial
  Times. Kandaurov compared
  the intended actions of the KGB
  and Interior Ministry to tax
  inspectors in the West or to the
  investigations of Western
  governments into suspected
  breaches of COCOM regulations
  (which prohibit high-technology
  exports to the Soviet Union).

• In an unmistakable signal to
  domestic entrepreneurs and
  foreign investors, one of the
  first persons accused of criminal
  activity in the operations of his
  foreign trade company, Istok, was
  prominent Soviet businessman and
  parliamentarian, Artyom Tarasov.
  Tarasov has been critical of
  Gorbachev’s hard-line policies.

• On 1 February, the Soviet
  militia, army, and navy began
  joint patrols in key urban
  centers as a result of
  orders signed by Gorbachev on 29
  December 1990. The police patrols
  — which have drawn some 12,000
  Soviet troops in the exercise
  with local police authorities —
  have already resulted in over
  5,000 arrests. On 5 February, a
  50 percent increase in joint
  patrols was ordered to cover 86
  Soviet cities.
• The government of the Russian
  republic called the action “a
  gross violation of human rights
  and state sovereignty” which
  risks further destabilizing the
  nation, according to a
  statement issued by the RSFSR
  Council of Ministers Presidium on
  30 January.

• By 3 February, even the foremost
  Gorbachev apologist — German
  Foreign Minister Hans Deitrich
  Genscher could no longer ignore
  the signs of Soviet repression.
  At Davos, Switzerland, he warned
  that Gorbachev was endangering
  his position in history and
  East-West cooperation:
  “The old thought patterns
  are returning to the Soviet
  Union” and “reactionary
  forces might attempt to restore a
  totalitarian regime throughout
  the country.”
• On 4 February, Soviet
  Interior Minister Boris Pugo was
  promoted to the rank of Colonel
  General. In a report by
  TASS, Pugo stated that the Soviet
  leadership will not tolerate the
  existence of two separate
  interior ministries in Soviet
  republics.
• On 5 February, Gorbachev
  decreed that the plebiscite on
  Lithuanian independence scheduled
  for the 9th is “without
  legal foundation,”
  essentially preemptively
  declaring the outcome null and
  void. “Such polls are
  untenable,” Gorbachev
  warned.
• In a further shot across the bow
  of independence-minded elements,
  Gorbachev announced in a
  nationally televised address on 6
  February that “Separatism
  will doom people and destroy
  their styles of life….Those who
  secede will doom themselves to
  failure.” Gorbachev
  has called for a 17 March
  referendum on the question of
  preserving the union.
• In the first indication that the
  Bush Administration may finally
  be undertaking its own Soviet
  crackdown watch — and in
  apparent penance for his abysmal
  performance in accommodating
  Soviet Foreign Minister
  Bessmertnykh the week before —
  Secretary of State James Baker
  testified before the House
  Foreign Affairs Committee on 6
  February that, “In the last
  several months, we have seen a
  series of unsettling events.

“They include the tragic
violence in the Baltics and
apparent turn toward economic
recentralization, a less free
media, extension of Army and KGB
authority and the resignation or
departure from the government of
key reform advocates. These
actions are completely
inconsistent with the course of
peaceful change, democratic
principles, the rule of law and
real economic reform.

“There is simply no
justification at all for the use
of force against peaceful and
democratically elected of
governments.”
In language sharper than seems to
have been used with the Soviets
themselves, Baker then added: “Perestroika
cannot succeed at gunpoint.”

• On 7 February, Secretary of
  Defense Dick Cheney said, in
  testimony before the House Armed
  Services Committee that “Mr.
  Gorbachev has resorted to and
  sanctioned a crackdown in the
  Baltics, appears to be prepared
  to use force to fall back upon
  the security services in the
  military, to try to maintain
  order inside the Soviet Union….We’re
  beginning to see now a reversal
  of some of the trends in terms of
  human rights and freedom of the
  press.” He warned that these
  developments could require upward
  revision in his requests for the
  defense budget.
• On 11 February, a major
  reshuffling of the top brass of
  the KGB took place after
  “certain [unspecified]
  questions had been decided at the
  level of the president,”
  according to KGB chief Vladimir
  Kryuchkov. The post of first
  deputy chairman was given to General
  Victor Grushko, former head of
  the KGB’s First Chief
  Directorate, or foreign
  intelligence service.
  Grushko secured his reputation
  within the KGB for his successful
  penetration of the EC in the
  1980s, according to the 12
  February Financial Times.
• Taking Grushko’s job will be Lieutenant
  General Gennady Titov, former
  chief of KGB operations in East
  Germany, also widely
  respected among his KGB
  colleagues for his success in
  recruiting spies from Western
  Europe, especially the UK,
  Ireland, and Sweden. He is
  described by one former senior
  KGB officer, Oleg
  Gordievsky, as “the most
  unpleasant and unprincipled KGB
  officer” he had ever met.

• On 12 February, in a chilling
  interview with Trud magazine,
  Soviet Prime Minister Valentin
  Pavlov declared that the
  confiscation of 50 and 100 ruble
  notes by Moscow’s central
  authorities was necessary to
  avoid a “financial
  catastrophe” planned by
  Western banks which were
  poised to flood the Soviet Union
  with ruble notes.

“We had to act swiftly,
because it was a matter of
hours” before “massive
purchases of 100- and 50- ruble
bank notes [were planned] by
banking organizations in this
country and several private banks
in Austria, Switzerland and
Canada. I shall not name
these banks, although I know
their exact addresses….The
financial war declared upon us
continues….One
cannot reveal to the enemy all
one knows about him.

“I can say, for instance,
that we know about an attempt to
resell billions of Soviet
currency to Switzerland via the
FRG and to Luxembourg and the
Netherlands via Hungary….Such
actions have been conducted in
many parts of the world in order
to overthrow a political system
or to get rid of uncongenial
political figures. A
financial catastrophe could lead
to the following projected
situation. Advocates of abrupt,
headlong privatization would come
to power. They could
conduct this privatization in the
context of spiralling inflation
in such a way that our country
would be sold lock, stock and
barrel next for nothing….We
were threatened with a loss of
economic independence,
with a kind of annexation,
creeping and bloodless.

The Center deems this hysterical
Pavlovian explanation of Soviet
confiscatory monetary policies as
symptomatic of the demise of genuine
economic reform in the USSR. Those
Western firms and banks not
already in full retreat from the Soviet
marketplace — at least that dominated by
the central authorities — will
eventually have a lot of explaining to do
to their shareholders and depositors. So
too will those Western leaders
who persist in placing their taxpayers in
the line of fire entailed in officially
guaranteed credits and trade
transactions.