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‘Show Me’: The Allies Must Demonstrate Their Commitment To Changing Cuba By Halting The Cuban ‘Chernobyl-In-The-Making’

January 6, 1997Center for Security Policy

(Washington, D.C.): Six months ago,
President Clinton blocked the
implementation of key provisions of the Libertad
Act, known for its chief sponsors — Sen.
Jesse Helms (R-NC) and Rep. Dan Burton
(R-IN). By so doing, he blocked American
companies and individuals from pursuing
legal remedies against European, Canadian
and other foreign entities trafficking in
U.S. property confiscated by the
communist regime of Fidel Castro.

The President claimed at the time —
in the midst of an election campaign in
which he was eagerly soliciting the votes
of Cuban Americans in Florida and New
Jersey⁽¹⁾
— that his action was “a
postponement,” not a
waiver. As the Casey Institute noted at
the time: “It escaped few
commentators’ attention that this
[six-month postponement] extend[ed]
conveniently through the November
elections.”

“As a sop to those in the
Cuban-American community who
understand the gravity of the
President’s backtracking, the
Administration promised to use
the next half-year to bring the
allies around to an American-led
consensus view about the need to
stop propping up Castro. As
Deputy National Security Advisor
Samuel Berger put it: ‘[Friendly
foreign governments can either]
join our efforts to promote a
transition to democracy in
Cuba…or they can face full
implementation of the law.'”

“The only ‘leading’ likely
to arise from this Clinton
capitulation — and the
ignominious U.S. behavior that is
likely to follow it in the face
of further threats of economic
retaliation from the European
Union — is that of the United
States, by the nose.
Worse yet, in this
episode, the allies have clearly
served notice that they do not
intend to be dissuaded from
coddling rogue states, despots
and megalomaniacs, whether they
be Cuban or Iranian, no matter
how great the danger such bad
actors present to U.S. and other
Western citizens and
interests.”⁽²⁾

We Told You So

Last Friday (increasingly Friday is the day of
choice for the Clinton Administration to
unveil controversial announcements) Under
Secretary of Commerce Stuart Eizenstat
revealed that Mr. Clinton suspended
implementation of these portions of
Helms-Burton’s Title III, yet again. From
the beaches of the U.S. Virgin Islands
(ironically, not far from Cuba) where he
was vacationing, the President announced
that he was once more issuing a six-month
waiver. As a result, allied companies
will be able to do business using
property confiscated from Americans with
no fear of reprisals for another six
months. Worse still, Secretary Eizenstat
reported that “the President
has indicated that he expects to continue
suspending the right to file suit as long
as our U.S. friends and allies continue
their stepped up efforts to promote
democracy in Cuba.”

Rather than acknowledge the true
extent of the capitulation to pressure
from foreign capitals such actions
represent, Secretary Eizenstat declared
that this was a glorious achievement of
American diplomacy — what he termed
“an unprecedented diplomatic
initiative.” With all the
tendentiousness of an Oscar honoree
determined to acknowledge each person who
contributed to his career, Mr.
Eizenstat publicly implicated every
senior member of the Clinton
Administration who had anything to do
with Cuba policy. According to
the Under Secretary, these included in
addition to the President: Vice
President Al Gore; the incumbent
Secretary of State Warren
Christopher and Secretary-designate
Madeleine Albright; Under
Secretary of State Tarnoff; National
Security Advisor Sandy Berger; outgoing
Commerce Secretary Mickey Kanter;
U.S. Trade Representative
Charlene Barshefsky; NSC
Inter-American Office director Ambassador
Jim Dobbins; Assistant
Secretary of State for Inter-American
Affairs Jeff Davidow; Mr.
Gore’s National Security Advisor Leon
Fuerth; and “dozens
of our ambassadors in Europe and
the Americas.”

A Fraud By Any Other
Name…

Rarely have so many been
credited with so much for so little.
The truth of the matter, of course, is
that the Clinton Administration has
virtually nothing to show for its much
ballyhooed diplomatic endeavors — apart
from a common position adopted in early
December by the European Union. Mr.
Eizenstat described this position as
“historic, extremely positive and
legally binding…which commits all 15
members and the European Commission to
press harder on human rights and
political and economic reforms” in
Cuba. With no hint of the comic absurdity
of his stance, he went on to declare that
the EU had never promised as a group to
“press harder” for anything
before!

Then, seemingly in anticipation of a
blatant sell-out by the Europeans, the
Special Representative of the President
and the Secretary of State for the
Promotion of Democracy in Cuba”
announced that:

“…At the EU heads of state
meeting in the middle of
December…they went a step
further and indicated that in any
future agreement if they were
to reach an agreement with Cuba
that there would be a specific
suspension clause so that the
agreement would be suspended if
there are any human
rights abuses.”

Does Under Secretary Eizenstat actually
believe that the Europeans — who are so
determined to do business with Castro
that they are relentlessly challenging
Helms-Burton in every conceivable venue
— would in fact suspend promising trade
deals and painstakingly constructed and
(government-subsidized) export beachheads
over a single political prisoner rotting
in a Cuban jail?

In fact, the
European Union made no such
commitment. In a statement
released on 14 December, it simply said:
“The EU will lend its support to
progress towards democracy, including
the possible negotiation of a cooperation
agreement. Any agreement
would, in accordance with EU practice,
contain a suspension clause in the event
of a serious breach of the human
rights provisions.”
(Emphasis added.)

What is more, it was only under
questioning by a reporter that Mr.
Eizenstat acknowledged that Canada
had not even gone through the motions of
providing a fig leaf for the
Administration’s appeasement. He
shrugged it off, however, saying:
“We have been in very close dialogue
with Canada….We’ve had a sustained
dialogue from them. Canada has
its own way of acting. We will
continue to have consultations with them
and we will see what develops from
that.”

Get Real

What Mr. Eizenstat has done,
presumably inadvertently, with his
listing of all those who share
responsibility for perpetrating such a
flim-flam on the American people — and,
in particular, the Cuban-American
community — is to permit a welcome
accountability for fraud when
the whirlwind is reaped. And, as the
Casey Institute observed on 17 July 1996,
there is little doubt that a whirlwind is
coming — a nuclear
whirlwind:

“Of perhaps greatest
immediate concern to the American
people, however, is the
assistance now in prospect from
European and other sources to
Fidel Castro’s bid to complete
two Soviet-designed and
irretrievably flawed VVER-440
nuclear reactors. According to
U.S. government estimates, the
all-but-certain accident that
will occur if one or both of
these reactors go on-line could
expose as many as 50-80
million Americans living
downwind to deadly levels of
radiation not seen since the
Chernobyl disaster of 1986.”

The Casey Institute continues to
believe:

“It must be a non-negotiable
condition of any further
conversations with allied
governments about implementation
of the Helms-Burton legislation
that all European and
Canadian assistance to the Cuban
nuclear reactor complex at
Juragua — including the
supplying of any component,
technical assistance or financing
— must be permanently halted.
As the nature of the flaws in
these reactors are systemic
(e.g., myriad faulty welds in the
cooling system; some 60%
defective equipment; rampant
corrosion; design problems in the
reactor dome and elsewhere,
etc.), no amount of
Western assistance short of
demolition and a complete fresh
start will significantly
address these reactors’ critical
safety deficiencies.

“By denying the Castro
regime the ability to correct its
current 15-20% energy shortfall
— to say nothing of
substantially expanding the
output of its electrical
production capability needed to
satisfy the requirements of
prospective tourist and
industrial (notably, mining)
concerns — the U.S. can obtain a
two-fer: 1) protecting
the American people
against a potential nuclear
catastrophe and 2) greatly
increasing the chances that the
objective of the Libertad
Act, namely, freedom at
long last for the beleaguered
Cuban population, will
actually be met.

“A failure to make the
termination of European and
Canadian component supplies and
financing to the Juragua nuclear
reactor complex near Cienfuegos
the minimal price for any further
accommodation on the Helms-Burton
Act would be a
breathtaking betrayal of
the public trust. Should it
result in a nuclear disaster for
the American mainland, fair
warning is served: The President
responsible for such a betrayal
may well be held to the ultimate
account by the American people
and their elected representatives
— impeachment
proceedings.”

As best as can be determined, not one of
the Administration officials identified
by Stuart Eizenstat even mentioned the
Cuban Chernobyl-in-the-making near
Cienfuegos, to say nothing of explicitly
tying even one more waiver of
Helms-Burton’s provisions to a
“binding legal commitment” to
the termination of any and all allied
cooperation (including equipment and
financing) to the Juragua nuclear reactor
complex.

The Bottom Line

It is simply intolerable that the
Clinton Administration would permit the
evisceration of any elements of
Helms-Burton — and most especially, a
presidential pledge to waive its most
exacting provisions permanently
— without at a minimum
protecting the American people from an
incipient nuclear danger. By doing just
that, though, the President is
not only betraying the commitment he has
repeatedly expressed (notably, before
his reelection) to the triumph of
democracy in Cuba. He is also betraying a
sacred trust to his own countrymen.

The 105^th Congress
must not stand idly by. It must
go forward with new legislation to
prevent any further waiver of
Helms-Burton’s provisions unless
accompanied by a presidential
certification that no European, Canadian,
Russian or Latin American material,
technological or financial assistance is
being used to bring on-line the fatally
defective nuclear reactors in Juragua,
Cuba.

– 30 –

1. Indeed, there
are some who believe that Mr. Clinton’s
willingness to sign the Helms-Burton
legislation into law in the first place
was almost entirely motivated by his bid
for Cuban-American votes.

2. See The
price of Compromise on Helms-Burton Must
Be Nothing Less Than an End to European
Help for the Coming Cuban ‘Chernobyl’
(No. 96-C
69, 17 July 1996).

Roger W. Robinson CNBC Interview

November 26, 1996Center for Security Policy

Russia’s Eurobond Issuing
Thursday, November 21, 1996

CNBC: Russia has issued its first
international bond in more than 75 years-the one billion dollar,
five year Eurobond. The emerging markets have been very keen on
this offering. There is, however, some growing concern about what
exactly those bonds will be funding due to the political
instability in the Kremlin and the fact that the country is
indeed in an illiquidity squeeze. Our next guest thinks investors
should look before they leap for the Eurobonds. Roger Robinson is
a former Chief Economist at the National Security Council at the
Reagan Administration and he currently heads up his own
consulting firm in Washington. And he joins us now from
Washington. Mr. Robinson, thanks for dropping by.

Roger Robinson: Thank you, Sue.

CNBC: Give me your take on why Russia is
floating this issue and how successful it will be.

Mr. Robinson: Well, I think it’s already
clear that its been very successful–oversubscribed from 500
million to about a billion dollars. I think it’s pretty clear
that they have a number of benefits here: they expand their
borrowing base enormously. Since 1917, they’ve primarily borrowed
from Western governments and banks only. Now you have securities
firms, pension funds, insurance companies, individual investors
all able to take a piece of this.

CNBC: And what is it that makes this
particular issue so attractive–hence it being oversubscribed?

Mr. Robinson: I think they are a new address
on the international capital markets. This is obviously a debut,
as I say, from 1917. That is an unusual event for the emerging
market groups.

CNBC: And in terms of what’s ahead for Russia
though, with the political instability and Mr. Yeltsin just
getting back on his feet, does that worry you at all about the
ultimate backing behind that bond?

Mr. Robinson: Oh, I think it does, Sue. I was
surprised and I think most analysts were surprised by the
favorable credit rating received by IBCA, Moody’s and Standard
& Poor’s that gave rise to this success. It’s a politicized
process at some level. Look at the IMF which was being relied
on–that was thoroughly politicized. And in the midst of this
bond offering they have suspended disbursements. Russia hasn’t
even signed the formal debt rescheduling on the $100 billion in
Soviet Union debt owed to western governments and banks, at least
at this time–at least it hasn’t been reconciled.

CNBC: What kind of rating would you have
given it, because obviously Moody’s and some of the other
investor services gave it a better rating than you thought was
appropriate and I have heard that from others. Would you have
even given it an investment grade rating?

Mr. Robinson: I frankly wouldn’t have a this
time. I mean I just don’t think they meet the criteria. We need
to look at where that money is going and how it’s being used.
This is not necessarily a benign event. They say it is for
funding the fiscal deficit, Sue, but if we think about it, they
also have a Topol ICBM missile, they have strategic modernization
goals, a more belligerent foreign policy as I mentioned and the
funding of a lot of former client states, like Iraq to Cuba with
a great deal of money involved. So, we have to ask ourselves–not
to mention the war in Chechnya–what are we funding here? And
that’s why I think it’s probably useful to have the appropriate
congressional committees at least ask some pertinent questions.

CNBC: So, are you saying we could be, in a
way, doing some backdoor funding for countries or political
affiliations that normally the United States would be against?

Mr. Robinson: I think it’s true. I mean after
all, you have here unconditioned, largely non-transparent,
undisciplined cash flowing into the coffers of folks like
Yvengeny Primakov–no friend of the West–and I think we need to
try to look at these questions carefully to make that it’s
consistent with the national interest and Western security
interests more broadly.

CNBC: Now, if Russia falls again or gets into
more trouble or political unrest increases in Russia, are those
bonds re-schedulable or re-financeable or not?

Mr. Robinson: I think that’s one of the big
problems–they are not reschedulable generally. The secondary
markets make the distribution too prolific. In fact, that’s kind
of the problem we got into with Mexico and the Tesobonos and why
we had to inappropriately use the Exchange Stabilization Fund of
the Treasury to have the American people fund out those bond
holders. Not to mention we have new constituencies being formed
all over the world on the political side to make sure that, for
example, Russia’s not to subject to economic sanctions or any
other serious penalties for misdeeds around the world.

CNBC: Is there a timetable, you think, on how
soon we will be able to tell whether or not these are actually
going to be successful? Obviously they have been initially, but
is there any kind of timetable to see their future success?

Mr. Robinson: Well, I think we will know
plenty as to whether the IMF, for example, kicks back in with
disbursements. And how does the Congress react to this? I may be
exaggerating their concern, but nevertheless, we have to look at
the political and security angles which have not at all been
scrutinized to date. I think we will probably know in the first
quarter how it is going because Russia has a very ambitious plan
in terms of bond offerings and this expanded penetration into the
Western securities markets.

CNBC: Very interesting. Mr. Robinson, thank
you so much.

Mr. Robinson: Thank you, Sue.

CNBC: We appreciate it. We’ve been speaking
with Roger Robinson, former Chief Economist at the National
Security council in the Reagan Administration. He joined us from
Washington.

Russian ‘Bondage’: Moscow’s Financial Breakout Gets Underway with Wildly Oversubscribed Eurobond Sale

November 26, 1996Center for Security Policy

(Washington, D.C.): Official
Washington may have not been paying close
attention but a momentous and
potentially ominous development took
place late last week — Russia’s
first international bond offering since
1917. This offering was eagerly
anticipated by “emerging
markets” and other fund-managers for
some time, as evidenced by the response:
Originally planned to raise $500 million,
the Kremlin’s debut issue was
over-subscribed by 100% (i.e., $1
billion) despite the extraordinarily low
interest rate offered (3.45 percent over
the five-year U.S. Treasury note rate)
and a relatively long-term maturity (five
years). ⁽¹⁾

What is Wrong With This
Picture?

Is Russia’s new access to the
international capital markets desirable?
The conventional wisdom holds that
Russia’s entry into the sophisticated
Western securities markets can only
accelerate Moscow’s integration into the
international financial and trading
systems. Some believe that it will also
serve to advance the decentralization of
economic decision-making and cause the
Russian leadership to be more responsive
to the markets.

Unfortunately — as is made clear in
the attached
CNBC interview with the William J.
Casey Institute’s Roger W. Robinson, Jr.
and column
which appeared in today’s Washington
Times by the Center for Security
Policy’s director, Frank J. Gaffney, Jr.
— these potentially positive
developments have a distinct downside: For
the first time since the Russian
Revolution, the Kremlin has the
opportunity to borrow massively from
sources other than Western governments,
commercial banks and multilateral
institutions. Now securities firms,
pension funds, insurance companies,
corporations and individual investors, to
name but a few, can and will be
tapped by Moscow.

Therein lies the rub. These sources
offer Russia an opportunity for
“financial breakout” — a goal
arguably even more coveted by the Russian
security services and foreign policy
apparatus than it is by the fledgling
Russian financial community.
Interestingly, in the final years of the
Soviet Union, Mikhail Gorbachev launched
a charm offensive aimed at Western
investors in the hope of keeping a
failing communist system on Western
life-support until the Kremlin could
construct a more viable economic system
(one such gambit was the oxymoronic
“command market” economy).

A key component of this
“Save-the-Union” plan was to
issue Soviet bonds in Western markets.
Such unconditional, general-purpose,
non-transparent, undisciplined sources of
cash, obtained at an inexpensive rate,
lent themselves nicely to underwriting a
range of foreign policy and security
priorities that might otherwise have been
unsupportable. Accordingly, the USSR
issued about seven or eight Eurobonds in
major currencies (yen, lire, francs,
Deutsche marks, etc.) that ultimately
yielded Moscow about $1.8 billion. The
crowning achievement of this
eleventh-hour “Perestroika
Bonds” salvage effort was to be a
direct run on the U.S. capital markets,
involving a dollar-denominated offering
out of New York. At the time, however,
certain legislative and political
impediments — now removed —
stood in the way.

Back in the USA

According to the London Financial
Times, some 44% of last
Thursday’s $1 billion bond issue was
bought up by US fund managers.
The remainder was placed with investors
in Asia (30%) and Europe (26%). As a
result, it is reasonable to
assume that certain American investors
will now end up — wittingly or
unwillingly — holding Russian bonds in
their mutual funds, pension funds and
insurance portfolios.

Moscow could, in short, be on its way
to recruiting over time formidable
new American and Western lobbies.
These lobbies could — as was recently
done in the case of Mexico’s tesobonos
— bring pressure to bear on the U.S.
government to make investors whole in the
event of a future Russian liquidity
crisis. The Kremlin is also
simultaneously creating powerful new
political constituencies which will
fiercely resist the imposition of US
economic, financial or other sanctions
against Moscow for serious misdeeds
around the world. After all, such actions
could seriously damage bond repayment
prospects.

Worse yet, these constituencies could
unknowingly be contributing to the
funding of activities inimical to U.S.
interests. Based on experience with the
Soviet system — which General Alexander
Lebed contends is still largely alive and
well — and contemporary evidence, it is at
least as likely that bond proceeds
will end up funding: the new Topol M
mobile ICBM and other strategic
modernization programs; the Kremlin’s
efforts to exercise control over secular
Muslim states in the oil-rich Caspian Sea
region; a robust international espionage
program (recently on display in
Washington); large-scale supplier credits
for the sale of two nuclear reactors and
arms to Iran; the completion of the two
irretrievably-flawed nuclear reactors
near Cienfuegos, Cuba; and other
operational aspects of what the Casey
Institute calls the “Primakov
Doctrine.”

Calling the 105th Congress

Do average Americans really have in
mind helping finance these activities
inimical to U.S. security interests? Is
the Congress going to abdicate its
responsibility to scrutinize the foreign
policy, national security and economic
implications of this Russian financial
breakout into the western securities
markets? If not, prompt hearings on the
subject must be convened in the 105th
Congress in the relevant House or Senate
forums, including foreign relations,
banking and finance, national security
and intelligence committees. The
following are among the questions
legislators should be examining:

Where are the cash
proceeds from this and other
Russian bond issues going and how
are they being used? The
Western firms managing bond
offerings would probably argue
that the money is going to help
reduce the country’s fiscal
deficit — a deficit that would
be considerably worse if wage
arrearages were cleaned up. Is
this true?

Even from an economic and
market perspective this Eurobond
offering appears premature at
best and reckless at worse.
For example, at a time when the
IMF has suspended disbursement on
its Extended Fund Facility to
Russia to protest anemic tax
collection efforts, is it in
Russia’s best interest to be able
to attract totally unconditional
and undisciplined cash from the
securities markets? What does
that do to the IMF’s efforts to
hold Russian feet to the fire on
even modest systemic reform?

The European and American
credit rating agencies appear to
have judged that the thoroughly
politicized IMF disbursements
during the Yeltsin election
campaign are a sure sign that
Moscow would not be permitted by
G-7 or other Western governments
from falling below a certain taxpayer-underwritten
floor. Are such
judgments warranted? Will the
Congress be prepared to bail out
investors in the event of a
Russian liquidity crisis?

Is it not troubling that
this bond offering debut comes in
advance of a formal
reconciliation and signing of a
rescheduling agreement for some
$100 billion in unpayable Soviet
debt owed to Western governments
and banks? From an
investor’s point of view, is it
not worrisome that the Russian
Ministry of Finance was recently
obligated temporarily to withhold
payment on domestic
dollar-denominated bonds
(MinFins)?

The Bottom Line

In sum, the West has been down this
road before — with many of the same
players. The diversion of untold
billions of dollars of borrowed Western
funds by Moscow in the Soviet era to
finance activities inimical to Western
security interests is a fact. The past
default by the Kremlin on billions of
dollars of US taxpayers money is likewise
a fact.

Accordingly, the burden of proof
should be on the Securities and Exchange
Commission, the Treasury and State
Departments, the Federal Reserve and
ultimately the White House to explain to
the public: What is substantively
different this time?
What safeguards and prudent financial
disciplinary measures are in place now to
protect the financial and national
security equities of the United States?
American taxpayers and investors alike
have a “need-to-know.”

– 30 –

1. In part, this
response may be due to the elaborate road
show around the United States put on by
the co-lead managers of the first Russian
Eurobond offering — J.P. Morgan and SBC
Warburg, along with the Russian Ministry
of Finance. An even more important
consideration, however, is probably the
“gift” rating bestowed by the
European and American credit rating
agencies — far higher than is warranted.
For more on Russia’s inflated rating see
If you like the Rigging of the Lebed
Dismissal, You’ll Love the Rigging of the
Global Credit and Securities Markets
(No. 96-C 100,
17 October 1996).

The Debate Begins Over Russia’s Financial ‘Break-out’;
Where Will it End for U.S. Taxpayers, Interests?

November 4, 1996Center for Security Policy

(Washington, D.C.): News is
reverberating in Moscow and the
international business community that
Paul E. Tatum — a prominent American
entrepreneur in the Russian marketplace
— was gunned down after publicly
decrying the corruption and intimidation
that have become rife in Moscow’s
business circles. Just as Mr. Tatum took
several rounds from a Kalashnikov, there
is increasing reason to believe that
unsuspecting Western investors are
likewise being set up to take some slugs
of a different — but perhaps no less financially
debilitating — kind.

In the latter regard, the Boston
Globe recently put a spotlight on a
major public policy issue that has been
ignored by virtually every other
newspaper in the United States: the
ominous financial, political and
strategic implications of Moscow’s
incipient bid to market bonds on the
Eurodollar market. The attached
article, which appeared on the Globe‘s
front page on Saturday, 2 November,
offers insights into the potential of
such an initiative — and its likely
successor, a U.S. bond issue to
be offered as soon as next year —
presented by critics, notably Roger W.
Robinson, Jr., the Casey Chair of the
William J. Casey Institute, and by
unnamed Clinton Administration officials
inclined to applaud what amounts to a financial
breakout for the Kremlin.

In a Perspective published
on 17 October 1996, the Casey Institute
provided details of Moscow’s coming
forays into the international bond
markets:

“…Russia is in a position
to secure a $500 million bond
issue with a five-year maturity
(vice three) following what money
managers almost universally
judged to be an unexpectedly high
(read, unwarranted) set of credit
ratings. As soon as November
1996, Moscow plans to go to
market with an initial Eurobond
offering and expects to receive
an interest rate of only 300-350
basis points (3-3.5%) above
comparable U.S. Treasury bonds.
Prior to this surprise rating,
Russia could not have expected a
rate less than 400-450 basis
points. According to
Russia’s draft 1997 budget, the
Kremlin is planning to raise at
least $1.3 billion in Eurobonds
next year alone.“ href=”96-C110.html#N_1_”>⁽¹⁾

The Critics’ Concerns

As the Globe report
indicates, by penetrating private
portfolios and Western financial
institutions in this way, Russia
is hoping to tap into the equivalent of
what has lately come to be vilified in
U.S. political circles as “soft
money” — essentially unconditioned,
undisciplined and largely non-transparent
sources of cash. Such
funds can be used for virtually any
purpose from relatively benign
ones — like meeting back-pay obligations
— to more sinister ones, notably
financing strategic modernization,
proliferation activities, intelligence
operations and other conduct inimical to
allied interests.

Worse yet, by their nature, these
bond sales have the potential to create
vast new constituencies in the West with
an interest in ensuring that Moscow is
able to honor its debts. This
can easily translate into a new source of
leverage for the Kremlin. Pressure
from those whose pension funds, mutual
funds, insurance portfolios, etc. wind up
holding Russian paper can be counted on
to seek bailouts from the U.S. and other
governments if the investments go sour,
and to object to any economic sanctions
or other American official policies that
might precipitate such an outcome.

The Advocates’ Claims

The rationalizations offered up by the
Globe‘s unnamed sources at the
Clinton State and Treasury Departments
are instructive:

‘The markets will
discipline the Russians’:
Unfortunately, a key reason why
the Kremlin’s bond issues in the
West are of such concern is the
fact that — when it
comes to Russia these days —
international market forces are
not making the key financial
decisions. They
are, instead, being principally
shaped by political factors.
Witness the International
Monetary Fund’s agreement earlier
this year to lend a further $10.3
billion to the Yeltsin
government, despite its failure
to meet stipulated economic
reform milestones. This action
occurred thanks to a manifestly
politicized effort by the Clinton
Administration and other Western
governments to aid Boris
Yeltsin’s re-election bid.

Ditto decisions about Overseas
Private Investment Corporation
political risk insurance
underwriting, notwithstanding
Russia’s escalating instability.
Or consider, most recently, the
astoundingly high credit rating
given to Russian bonds by
European and American rating
agencies — despite Moscow’s
not-yet-completed rescheduling of
over $100 billion total
indebtedness to Western private
sector and government lenders.

‘The amount is so small,
it won’t matter if it proves to
be a bad investment’:
This is, of course, the classic
“camel’s nose under the
tent” phenomenon. The
upcoming $500 million Eurobond
offering is sufficiently small to
minimize objections; once it has
been placed, however, the
precedent will be cited to shunt
aside criticisms of more frequent
and far larger
offerings.

‘An unstable Russia is
more of a problem than bad
bonds’: This is the
intimidating logic of protection
racketeers — pay me now because,
if you don’t, something bad might
happen to your children. There is
no assurance that even
large-scale bond offerings which
net billions for Moscow will
prevent instability in and/or
aggressive behavior on the part
of Russia. Arguably, the last
thing one wishes to do in the
face of one or the other of these
prospects is to provide
substantial, unmonitorable and
undisciplined revenue streams
(i.e. with no precise idea of
where the money is going and for
what it is being used).
Western interests will likely not
be served should such funds wind
up underwriting one Kremlin
faction or another, hemorrhaging
to foreign bank accounts or
subsidizing force modernization,
civil wars or technology
diversions. Neither will the
West’s interests be advanced if,
along the way, American and
allied citizenries can be
effectively blackmailed into
supporting — or not objecting to
— Moscow’s policies.

The Bottom Line

The William J. Casey Institute of the
Center for Security Policy reiterates its
call for subjecting Moscow’s stealthy
financial breakout to urgent and close
scrutiny. As it noted on 17 October:

“…The stakes are such that
the Senate and House
Banking and Commerce Committees,
House National Security and
International Relations
Committees, Senate Armed Services
and Foreign Relations Committees
and the respective bodies’
Intelligence Committees
should elicit as much information
as possible from relevant
executive branch and independent
agencies.

“The latter
should include: the Treasury
and State Departments, the
Federal Reserve, the Securities
and Exchange Commission, the CIA
and FBI. Formal hearings
should then be held promptly next
year upon the convening of the
new Congress as the horse will
already be out of the barn in
Europe and at least some U.S.
fund managers will probably have
begun taking Russian paper into
their international
portfolios.”

– 30 –

1. See If
You Liked the Rigging of the Lebed
Dismissal, You’ll Love the Rigging of the
Global Credit and Securities Markets
(No. 96-C 100,
17 October 1996).

If You Like the Rigging of the Lebed Dismissal, You’ll Love the Rigging of the Global Credit and Securities Markets

October 17, 1996Center for Security Policy

(Washington, D.C.): It is ironic that
the firing of Russian National Security
Advisor Aleksander Lebed — a key
indicator of the political instability
and potential for turmoil in Russia —
occurred just hours after the last U.S.
presidential debate passed without a
single question about the security
policy challenges that will confront the
next occupant of the White House. Few
actions could more forcefully underscore
the folly of believing that the world can
be safely ignored or demonstrate more
clearly the dangers of the Clinton
practice of over-investing in the
Kremlin’s ruling elite.

Specifically, the transparently
orchestrated dismissal of General Lebed
put into sharp focus the recklessness of
several Clinton initiatives designed to
prop up the Yeltsin-Chernomyrdin
government. These include the following:

Unjustifiable Lending by
the IMF

In the months leading up to this
summer’s presidential elections in
Russia, the International Monetary Fund
responded to intensive pressure from
Washington and other Western capitals by
relaxing the criteria and the
conditionality terms that borrowing
nations are expected to meet before
receiving disbursements on IMF loans. As
the Casey Institute of the Center for
Security Policy noted on 10 September:

“…The IMF, after
temporarily suspending the July
tranche of a $10.1 billion loan
to Russia, suddenly deemed that
Moscow had finally come to grips
with its tax collection problem
(despite the fact that tax
collection fell by 62% in the
first six months of 1996). This
decision, made only two weeks
after the original suspension,
came on the heels of comments
made by the new Russian Finance
Minister, Aleksandr Livshits,
that equated Russian tax
collection with a ‘black hole’
and said that Russia is an
unusual country because it is
possible to ‘pay no taxes at all
and nothing whatever will
happen.’

“Moreover, the IMF agreed to
raise Russia’s budget deficit
target from 4% to 5.25% of GDP,
allowing it to qualify for
further disbursements of the
loan, despite a ballooning
deficit. It appears to many
informed observers that these IMF
decisions were designed to allow
President Boris Yeltsin to make
good on at least some of his
outrageous election campaign
promises and to ensure that the
Clinton Administration’s
misguided Yeltsin-centric Russian
policy does not collapse prior to
the November elections.” href=”96-C100.html#N_1_”>⁽¹⁾

On 24 September 1996, the Casey Institute
called attention to relevant remarks made
in Washington five days earlier by Grigori
Yavlinsky. href=”96-C100.html#N_2_”>⁽²⁾
Before a Radio Free Europe/Radio Liberty
audience, the economist and former
self-declared democratic candidate for
the Russian presidency, confirmed the
Center’s long-held suspicion that IMF
disbursements to Russia were directly or
indirectly being used to help finance
what Yavlinsky described as
“genocide” in Chechnya, saying
in part:

“…It looks like
our government is collecting
taxes from you…via IMF — and,
by the way, spending them on the
war, the war in Chechnya.
Nobody can say that this money is
not used for that. It [is
being] used to finance the war.
But they’re not collecting even a
half of the taxes they have to
collect, but they have money from
the IMF to use it for the war in
the same time.”

The OPIC Scam

The Clinton Administration next moved to turn
the Overseas Private Investment
Corporation (OPIC) into the latest White
House slush-fund-of-choice for extending
aid to the Russian government. In July
and August alone, OPIC provided $830
million toward guaranteeing or insuring
against political instability and other
country-of-risk factors in Russia. The
intensifying instability there has only
served to reinforce concerns that these
contingent liabilities will become
due-and-payable liabilities, in a manner
reminiscent of other
taxpayer-underwritten guarantee schemes
gone sour (e.g., the Savings and
Loan crisis, the Agriculture Department’s
Commodity Credit Corporation
multi-billion debacles in Iraq and the
Soviet Union, etc.)

Worst yet, in September, the
Administration sought congressional
approval to double its credit guarantee
and insurance ceilings to roughly $45
billion. The Center joined with a number
of other organizations across the
political spectrum to oppose this
unwarranted expansion of U.S. contingent
liabilities. Thanks to the leadership of
Reps. John Kasich (R-OH), Ed Royce (R-CA)
and others, this ill-advised initiative
was soundly defeated in the House of
Representatives.

The Penetration of Western
Securities Markets — It Begins…

Russia currently has total
indebtedness of roughly $130 billion —
the vast majority of which has been
“rescheduled” due to the former
Soviet Union’s default on Western private
sector and government credits. Even the
estimated $19 billion in loans extended
to Russia since 1991 has experienced late
interest payments, with the prospect that
this debt could also be rescheduled down
the road.

Against this backdrop it is
stupefying that credit rating agencies of
Europe and the United States are giving
Moscow an inflated credit rating
— so much so that it is higher than that
of Brazil, Turkey, Argentina or Venezuela
and on a par with Mexico, India and
Hungary. Not surprisingly, the
most egregious rating was provided by the
European agency IBCA of BB+ (i.e., one
notch below “investment grade”).
Moodies offered a rating of BA2 (two
notches below investment grade). And
Standard and Poors gave Russia a rating
of BB- (three notches below). According
to some experts, the European rating
would serve to encourage even
conservatively managed pension plans to
hold Russian paper. href=”96-C100.html#N_3_”>⁽³⁾

In short, Russia is in a
position to secure a roughly $500 million
bond issue with a probable five-year
maturity following what money managers
almost universally judged to be an
unexpectedly high (read, unwarranted) set
of credit ratings. As soon as
November 1996, Moscow plans to go to
market with an initial Eurobond offering
and expects to receive an interest rate
of only 300-350 basis points (3-3.5%)
above comparable U.S. Treasury bonds.
Prior to this surprise rating, Russia
could not have expected a rate less than
400-450 basis points. According to
Russia’s draft 1997 budget, the Kremlin
is planning to raise at least $1.3
billion in Eurobonds next year alone. The
lead managers for Russia’s first issue
are J.P. Morgan and SBC Warburg.

Prime Minister Viktor Chernomyrdin is
likewise looking to the Western
securities markets to raise capital for
the enterprise that serves as his
political base and source of immense
personal wealth, Gazprom. The world’s
largest gas company is expected to raise
$500 million by selling 1.5% of its
equity to international fund managers. It
will first issue a $380 million offering
of American Depository Shares (each of
which represents 10 ordinary shares) for
a total of 23.7 million shares this year.
These international shares will sell for
about $1.40 apiece — substantially
higher than the $0.40 per share domestic
price — and will be traded initially on
the London Stock Exchange. A New
York offering is expected within as
little as 12 months.

What Will Russia’s
‘Financial Breakout’ End up Funding?

The prospect that the Kremlin will for
the first time begin selling securities
not only to European and Japanese
investors but to American securities
firms, mutual and pension funds,
insurance companies, corporations, and
individual portfolios is made all the
more ominous by the potential uses to
which such new sources of funds may be
applied. Probably unbeknownst to
the typical American investor or employee
who may wittingly — or unwittingly —
wind up holding Russian paper, these
undisciplined, unconditioned and largely
non-transparent revenue streams flowing
into the Kremlin’s coffers could be used
to underwrite activities inimical to U.S.
and Western security interests.
These might include:

The funding of Russian
supplier credits to facilitate
the transfer of nuclear reactors
to the fanatical Islamic
government of Iran, a
regime determined to divert the
associated technology,
infrastructure, know-how and
training to the production of
nuclear weapons.

The completion of
irretrievably flawed Soviet-era
VVER 440 reactors under
construction at the Juragua
nuclear complex near Cienfuegos,
Cuba.

A contribution to
Russia’s ongoing
strategic force modernization
programs including new
classes of mobile ICBMs (the
TOPOL-M), SS-N-24/26
submarine-launched ballistic
missiles and retrofitted Typhoon
submarines on which they will be
deployed.

Helping to finance
Moscow’s efforts to intimidate,
coopt and coerce secular Muslim
states involved in the
extraction, processing and
transmission of the estimated 200
billion barrels of oil in the
Caspian Sea basin.

Underwriting a major new
initiative by the Russian
intelligence services intended to
secure critical military,
industrial and financial
information at the expense of
Western interests.

Enabling Moscow to meet
its existing pledge of a $10
billion credit to expand and
accelerate Iraqi oil production
the moment UN-imposed sanctions
are eased or lifted. And

Providing new revenues to
be skimmed by corrupt officials,
joining untold billions of
dollars already diverted to
secret bank accounts in
Switzerland, Cyprus and
elsewhere.

What Will Be Reaped

If allowed to go forward under present
circumstances, two further developments
seem predictable: First, the
politicized process that has given Moscow
today’s inflated credit ratings will, in
due course, improve further — ultimately
passing the threshold of “investment
grade” securities. At that
point, it will be highly problematic to
impose the necessary discipline,
transparency and conditionality on this
sophisticated funding mechanism for the
Kremlin’s activities.

And second, the large number of likely
holders of Russian paper and the
secondary markets for these instruments
make it virtually impossible to
reschedule bonds and notes. This, in
turn, can be expected to give
rise to a potentially large number of
constituencies that will almost
certainly demand U.S. government or
multilateral bailouts in the event of
liquidity crises that impede Moscow’s
ability to redeem its bonds on the
respective maturity dates. (Recall the
circumstances that led to the misuse of
the Exchange Stabilization Fund of the
U.S. Treasury to redeem Mexico’s tesobonos.)

Worse yet, these
constituencies can be predicted to
produce powerful new political advocacy
groups that could come to rival the China
Lobby, which has successfully
emasculated many U.S. foreign, economic
and security policies toward Beijing,
lest American financial and commercial
interests be adversely affected.

The Bottom Line

These ominous prospects demand that
Moscow’s stealthy financial breakout be
subjected to urgent and close scrutiny.
Even though Congress is out of session
and otherwise preoccupied at the moment,
the stakes are such that committees like Senate
and House Banking and Commerce
Committees, House National Security and
International Relations Committees,
Senate Armed Services and Foreign
Relations Committees and the respective
bodies’ Intelligence Committees
should elicit as much information as
possible from relevant executive branch
and independent agencies.

The latter should include: the Treasury
and State Departments, the Federal
Reserve, the Securities and Exchange
Commission, the CIA and FBI.
Formal hearings should then be held
promptly next year upon the convening of
the new Congress as the horse will
already be out of the barn in Europe and
at least some U.S. fund managers will
probably have begun taking Russian paper
into their international portfolios.

If Congress does its job, it will
clearly establish the increasingly
strategic dimension of the international
efforts being mounted by governments like
that of Russia and China to diversify the
way they fund themselves and their global
activities. It can only be hoped that the
national security implications of these
seemingly benign and legitimate market
initiatives will be addressed in time.

– 30 –

1. See Double
Trouble at OPIC: Exposing Taxpayers and
Underwriting Foreign Adventurism
(No. 96-C 82,
10 September 1996).

2. See Yeltsin
Has Been Politically Terminal for Months;
What Did Al Gore Know — and When Did He
Know It? ( href=”index.jsp?section=papers&code=96-C_89″>No. 96-C 89, 24
September 1996).

3. The Casey
Institute will shortly publish a more
detailed examination of the forthcoming
Russian bond offering and its
implications for the equities of both
Western governments and private
investors.

‘RIGHT ON’: THE NEW REPUBLIC EVISCERATES CRITICS OF THE HELMS-BURTON CUBAN DEMOCRACY ACT

July 12, 1996Center for Security Policy

(Washington, D.C.): Last week, President Clinton
announced that he would prevent the immediate
implementation of provisions of the Cuban Democracy Act,
known for its chief sponsors, Sen. Jesse Helms (R-NC) and
Rep. Dan Burton (R-IN). As the William J. Casey Institute
of the Center for Security Policy noted at the time, ⁽¹⁾ such action
represented a deplorable capitulation to foreign pressure
in the face of a clear national interest in cutting off
the economic life-support to Cuban dictator Fidel Castro.

The provisions in question would allow American
citizens to sue Canadian, European and other foreign
companies in U.S. courts over their use of assets seized
by the Castro regime. Allied governments representing the
affected companies have tried to downplay the
significance of the sustaining effect their hard currency
investments and operations are providing Cuba’s communist
dictatorship. They contend, instead, that “economic
engagement” will do more to liberalize the Cuban
dictatorship than will the sort of effective multilateral
boycott sought by successive U.S. administrations. As
usual, members of the American foreign policy
establishment and their many admirers in the press have
parroted this line, contributing to the pressure that
prompted Mr. Clinton to waffle on implementing the
relevant portions of the Helms-Burton act.

Mirabile Dictu

This backdrop makes all the more remarkable a recent
article by an author not generally associated with the
likes of Messrs. Helms and Burton that appears in the
current edition of a highly regarded, mainstream public
policy journal — the New Republic.
The attached article, entitled “Canada
Sly,” was written by Charles Lane.
It exposes such arguments for what they are — an attempt
to mask the unadulterated greed that drives
these companies to cooperate with a totalitarian regime
like Castro’s. Among Lane’s most damning insights are the
following:

“…These foreign operations are a
caricature of competitive capitalism. Their
impact is anything but subversive. Rather, they
reinforce Castro’s grip on power, just as
American banana companies once bolstered the comprador
elites of Central America. What’s really
‘offensive’ is the moral obtuseness with which
the political and business elites of Europe and
Canada view Castro’s dictatorship, and the
sanctimony with which they exploit Helms-Burton
to vent cheap anti-American sentiment.

“When Canadian investors come to Havana,
they don’t shop around for partners among the
Cuban populace at large; the average Cuban can’t
own private property, much less engage in
ventures with foreigners. All deals are
negotiated with the government, often with Fidel
personally. No competitive bids, no international
tender offers in the Economist, just a
nod from the man in charge…”

“…Canadian companies agree in advance
to hire their Cuban workers through the island’s
national employment agency, which is controlled
by the Communist Party — and vets workers for
political obedience. Simon Cooper, a Canadian
hotelier on the island, told the [Toronto] Globe
and Mail that he makes sure not to
be ‘perceived as contracting directly with
individuals [or] encouraging a free market in any
way.” (Emphasis in original.)

The Bottom Line

Charles Lane’s blistering critique of the allies’
hypocrisy and self-serving deceit underscores the
importance of resisting their demands that Helms-Burton’s
key provisions be permanently waived. The Casey Institute
takes heart in this respect from the recent adoption in
both houses of Congress of legislation intended to impose
similar economic disincentives on foreign companies doing
business with two other malevolent regimes: Iran and
Libya.

The Lane article also adds urgency to the Institute’s
recent recommendation that the United States make
it:

“a non-negotiable
condition of any further conversations with
allied governments about implementation of the
Helms-Burton legislation that all
European and Canadian assistance to the Cuban
nuclear reactor complex at Juragua — including
the supplying of any component, technical
assistance or financing — must be permanently
halted. As the nature of the flaws in
these reactors are systemic (e.g., myriad faulty
welds in the cooling system; some 60% defective
equipment; rampant corrosion; design problems in
the reactor dome and elsewhere, etc.), no
amount of Western assistance short of
demolition and a complete fresh start will
significantly address these reactors’ critical
safety deficiencies.

“By denying the Castro regime the ability
to correct its current 15-20% energy shortfall —
to say nothing of substantially expanding the
output of its electrical production capability
needed to satisfy the requirements of prospective
tourist and industrial (notably, mining) concerns
— the U.S. can obtain a two-fer: 1) protecting
the American people against a potential
nuclear catastrophe and 2) greatly increasing the
chances that the objective of the Libertad
Act, namely, freedom at long last for the
beleaguered Cuban population, will
actually be met.”

– 30 –

1. See the Center’s Perspective
entitled The Price of Compromise on
Helms-Burton Must Be Nothing Less Than an End to European
Help for the Coming Cuban ‘Chernobyl’ ( href=”index.jsp?section=papers&code=96-C_69″>No. 96-C 69, 17 July 1996).

TOUR D’HORIZON: CASEY INSTITUTE’S ROBINSON EXPLORES FINANCIAL IMPLICATIONS OF GEOPOLITICAL DEVELOPMENTS

May 2, 1996Center for Security Policy

(Washington, D.C.): On 25 April 1996, Roger W.
Robinson, Jr., who holds the Casey Institute’s William
J. Casey Chair, briefed an audience of Wall Street fund managers,
bankers, investment house principals and financial reporters on
the probable repercussions of key international trends. The event
occurred at the Union Club in New York under the auspices of the
Committee for Monetary Research and Education (CMRE).

Mr. Robinson brought to the discussion of “The State of
The Globe — Markets, Political Pressures, Risk and Rewards”
rich experience in the private and public sectors, having served
as the Chase Manhattan Bank’s Vice President for the Soviet
Union, Eastern Europe and Yugoslavia and as the Senior Director
for International Economic Affairs at the Reagan National
Security Council. The other distinguished participants were: the
evening’s chairman, J. William Middendorf —
who, in addition to being an accomplished financier and senior
government official, has long served on the Center for Security
Policy’s Board of Advisors; James Grant (Grant’s
Interest Rate Observer); Robert Gilmore
(American Institute for Economic Research); and Walker
Todd (an economic consultant and former member of the
Cleveland Federal Reserve Bank).

There was a general consensus among these participants that
the nexus between the traditional operation of global markets and
existing and emerging geopolitical
develop-ments/challenges is rapidly becoming more pronounced.
There is, moreover, an increasing prospect of market distortion
and turmoil. This nexus, as well as its implications for the
Nation’s interests and security, are the principal focus of the
Casey Institute’s work-program.

Roger Robinson’s contribution to the discussion ( href=”index.jsp?section=papers&code=96-R_42at1″>four pages of excerpts of which are
attached) offered a valuable geopolitical backdrop against
which to gauge the currency and equities markets and to evaluate
the prospects for international trade, financial, energy and
technology flows. Before offering insights about developments in
the Middle East, Russia, Asia and Europe, Mr. Robinson noted:

“The traditional firewall between breaking
geopolitical developments and the markets will be breached
with increasing frequency and violence in the period ahead.
Accordingly, normal commercial and economic ‘due diligence’
concerning international projects, transactions and trading
activities will, in many cases, no longer be adequate to
ensure the level of investor and/or lender confidence and
security deemed necessary.”

CENTER INAUGURATES WILLIAM J. CASEY INSTITUTE WITH SYMPOSIUM ON EMERGING CRISIS IN THE CASPIAN BASIN

March 14, 1996Center for Security Policy

(Washington, D.C.): As Deputy Secretary of State Strobe
Talbott and Deputy National Security Advisor Sandy Berger paid a
high-level visit to Azerbaijan yesterday, the Center for Security
Policy convened a prestigious symposium to explore the enormous
strategic and economic implications of the emerging crisis in the
Caspian Sea basin. These actions indicate the growing
appreciation, both inside the Clinton Administration and among
informed non-governmental experts, of the great stakes associated
with this crisis.

This symposium — the first in a series of semi-annual
meetings to be convened alternatively in Washington and New York
under the auspices of the new William J. Casey Institute
of the Center for Security Policy — highlighted the
nexus between international energy, financial, trade and
technology developments and evolving U.S. national security
interests evident in this strategic region. Addressing
the intersection of such disciplines will be the special focus of
the Casey Institute, just as it was the life-long preoccupation
of the distinguished Wall Street financier, lawyer and public
servant for whom the Institute is named.

Among the more than sixty participants in this half-day
symposium were representatives of the Departments of Defense,
State and Energy, diplomats, industry experts, senior
congressional staff and members of the press. The lead discussant
in the first session was Senator Jon Kyl,
a member of the Senate’s Energy and Natural Resources and
Intelligence committees who is rapidly emerging as the U.S.
Senate’s most thoughtful expert on national security matters.
Senator Kyl has long been a distinguished member of the Center’s
Board of Advisors; in 1994, he was the recipient of its
“Keeper of the Flame” award. In the course of the Casey
Symposium, Sen. Kyl provided a valuable strategic overview of the
vast oil reserves of the Caspian Basin — and the urgent need for
increased attention to the subject on the part of both American
policy-makers and the public at large.

A second session concerning the extraction and transmission of
the Caspian’s oil reserves was addressed by Dr. T. Don
Stacy, Chairman and President of Amoco Eurasia Petroleum
Corporation. Amoco Eurasia is a leading member of the Azerbaijan
International Operating Company (AIOC) consortium developing
Azerbaijan’s oil reserves. Dr. Stacy provided a detailed
technical presentation of the physical location, size and
geo-political complexities associated with bringing to market
what he characterized as potentially the world’s
second-largest oil reserves — and a key
energy resource for the industrialized nations in the 21st
Century.

The discussion during the third session considered how U.S.
national security and economic interests in the region might be
best protected. It was led by former Assistant Secretary of
Defense for International Security Policy Richard Perle.

Mr. Perle argued that the United States has interests
virtually everywhere around the globe, in particular in such
areas as the Caspian Sea where secular governments (like that of
Azerbaijan) are seeking to emerge from decades of Communist
misrule and aspiring to become secure elements of the Western
financial and trading systems.

Roger W. Robinson, Jr., a former Vice
President at Chase Manhattan Bank and Senior Director for
International Economic Affairs at the Reagan National Security
Council who will be the first holder of the Casey Institute’s William
J. Casey Chair, summarized the key points emerging from
the Symposium as follows:

The strategic importance of the region demands far
greater and more sustained priority in the U.S. and
Western policy-making process than it has received to
date.

Russian intentions with respect to controlling
Caspian Sea oil and gas — which increasingly are being
actualized in partnership with Iran — are considerably
more aggressive than has previously been
appreciated in Washington and other Western capitals. In
this connection, Moscow has been exploiting U.S.
preoccupation with developments in the Taiwan Straits,
the Middle East and the Balkans to advance its agenda of
reasserting hegemony over the Caucasus and Central Asia.

A more robust and balanced U.S. policy
approach needs to be implemented forthwith. This
will require demonstrating priority American interest and
engagement in the region and improving relations with
regional actors in addition to Armenia. Specifically, the
United States needs to pursue concrete measures designed
to bolster Western-oriented secular Muslim states —
notably, Turkey and Azerbaijan. Such steps
should include: reciprocal head-of-state meetings, direct
and indirect U.S. assistance flows, encouragement of
American investment in the region and security-related
discussions.

The Casey Institute will shortly release href=”96-C94at1.html”>highlights of the Symposium. To
receive a copy, please contact the Center.

Immediately after the Symposium’s conclusion, the Center for
Security Policy hosted an elegant luncheon at which William J.
Casey was posthumously awarded the Center’s prestigious
“Freedom Flame” award. This event was the occasion of a
major address on foreign and defense policies by Steve Forbes. href=”96-R28at.html”>Excerpts of Mr. Forbes’ extraordinary
remarks will be circulated tomorrow, together with
particulars on the distinguished company that participated in the
Casey “Freedom Flame” luncheon.

– 30 –

WE’RE ‘SHOCKED, SHOCKED’: ARAFAT BITES THE HANDS TRYING TO FEED HIM $500 MILLION IN U.S. FOREIGN AID

September 27, 1995Center for Security Policy

(Washington, D.C.): In an extraordinary display
of ingratitude, not to say intemperateness, Yasser
Arafat’s Palestinian Authority (PA) recently repudiated
legislation aimed at ensuring its continued access to
hundreds of millions in U.S. tax-dollars. On 23 September
1995, the PA’s “Ministry of Information” issued
a press release excoriating a legislative initiative
sponsored by Sens. Jesse Helms and Claiborne Pell, the
chairman and ranking member respectively of the Senate
Foreign Relations Committee. The Helms-Pell legislation
was adopted last week by the United States Senate as an
amendment to the Fiscal Year 1996 Foreign Operations
appropriations bill.

Without mentioning the amendment by name, the
Palestinian Authority heaped vitriol on the preconditions
imposed by the Helms-Pell amendment on further
disbursement of the $500 million that President Clinton
pledged to Arafat two years ago. Its release declared, in
part:

“The American decision to extend financial
assistance to the Palestinian National Authority
contradicts any accepted practice. This decision that
was taken while handcuffed (sic) with heavy chains of
conditions. It is provocative and insulting to the
Palestinian national feelings. The decision is a
flagrant intrusion in internal Palestinian matters…The
American Congress has placed at the very heart of its
conditions the closing of Palestinian institutions in
Jerusalem and the cessation of support by the
Palestinian National Authority for these
institutions. This exposes the true face of
American policy towards the Holy City, a policy that
supports and assists further Jewish occupation of
Jerusalem, its annexation to Israel and it further
confirms Israel’s claims that Jerusalem is its
united, everlasting capital…

“…The American Congress has relinquished
the American role as a sponsor of the Declaration of
Principles and declared its absolute partiality in
the interest of the worst and most damaging of
Israeli interpretations, by rushing ahead more than
the Israelis themselves have done when they [members
of Congress] demanded the canceling of some
articles in the Palestinian National charter and
when they demanded Palestinian co- operation with
Israel in surrendering wanted Palestinian citizens to
it despite the fact that this demand violates the
signed agreements between the PLO and the government
of Israel…”

“The conditions that the American Congress
demanded will not find anyone to respond to them. The
members of Congress, who do not respect international
legitimacy, will not need to wait six long months
because the Palestinian people will not barter
their rights for all the money in the world.”
(Emphasis added.)

Arafat Never Promised You a Rose Garden

What makes such vitriolic attacks particularly
stunning is the fact that they are basically directed at
two senior Senators who have gone to great lengths to
protect the PLO/PA from the sort of real
conditions that many Americans believe are in order.
In light of Arafat’s continuing support for terrorism
against Israel, his failure to comply with other
commitments under the Declaration of Principles and his
diversion of international aid to personal and political
purposes inimical to real peace, a powerful case can be
made for denying any further distribution of the
roughly $350 million yet to be disbursed to the PA.

Congressional leaders, and Senator Helms in
particular, have come under enormous pressure from the
Clinton Administration, the Israeli government of Yitzhak
Rabin and the American Israel Public Affairs Committee to
keep the aid flowing to Arafat, such problems
notwithstanding. In the end, Senator Helms was induced to
set aside his instinctive — and well-founded —
opposition to undisciplined foreign aid and to those who
support international terrorism. Instead, he lent his
name to a foreign aid bill for the PLO/PA whose
conditions were deliberately crafted with sufficient
ambiguity and/or loop-holes to meet with Arafat’s
approval and to allow hundreds of millions of additional
tax-dollars to go to his organizations.

The Bottom Line

The simple truth is that two years after the Oslo
I agreements were signed, efforts to moderate Yasser
Arafat’s behavior through financial, political (and, in
the case of Israel, territorial) concessions have not had
the desired effect. Instead, such concessions in the
face of continued Palestinian gangsterism appear only to
have encouraged more of the same. For example, last week,
even as the Congress was considering the Helms-Pell
legislation, Arafat used interviews with the Egyptian and
Jordanian press to affirm that the Oslo agreements are
implementing the notorious “plan of phases”
adopted by the PLO in 1974. Phase I involves obtaining
territory from Israel via negotiation; Phase II will use
that territory to launch a final campaign for the
destruction of Israel.

Fortunately, Congress has an alternative at hand to
such appeasement. Legislation has been introduced in both
the Senate and House that would mandate a complete
cut-off of funding for the PLO/PA. This bill, known as the
Middle East Peace Compliance Act and sponsored in the
Senate by Sens. Alfonse D’Amato, Richard Shelby and Larry
Craig and in the House by Reps. Michael Forbes, Jim
Saxton and Tom DeLay, would allow continued aid to go
toward legitimate, monitorable and private humanitarian
projects in Palestinian-controlled areas — provided
the PLO honors its commitments.

The Center for Security Policy urges Senator Helms
and others affronted by Yasser Arafat’s imperiousness to
substitute the real conditions called for by the
D’Amato-Forbes bill for the ersatz conditions of the
Helms-Pell legislation. As the attached
op.ed. by Center for Security Policy director Frank
J. Gaffney, Jr. published in today’s Newsday makes
clear, Israel is not the only nation with a stake in the
quality of such conditionality. America’s own
vital interests dictate that the United States must make
every effort to avoid rewarding PLO support for terrorism
and other non-compliance.

RULE, RULE, WHO GETS THE RULE?: WILL RULES COMMITTEE SUPPORT DELLUMS-SPENCE EFFORT TO FIX FLAWED EXPORT CONTROL BILL?

July 12, 1994Center for Security Policy

(Washington, D.C.) Amidst all the
highly publicized congressional jockeying
for jurisdiction and control of the
health reform issue, a truly momentous
realignment of power in the House of
Representatives has gone almost
completely unnoticed: the recent
assertion of oversight authority for
national security-related export controls
by the House Armed Services Committee
(HASC). For the first time in memory, the
HASC succeeded this spring in obtaining
sequential referral of legislation, H.R.
3937, emanating from the House Foreign
Affairs Committee (HFAC) that would
overhaul — and eviscerate —
the Export Administration Act.⁽¹⁾

As a result, the Armed
Services Committee was in a position to
provide the sort of “adult
supervision” of U.S. technology
transfer policy that has been so lacking
in recent years. With
astonishing bipartisan support, the HASC
adopted no fewer than thirty-two
amendments to H.R. 3937, substantially
rewriting its key provisions. The
Committee also unanimously issued a
report that sharply criticized the bill’s
principal authors — Reps. Sam Gejdenson
(D-CT) and Toby Roth (R-WI), chairman and
ranking member respectively of the HFAC
Subcommittee on Economic Policy, Trade
and Environment — for “severely
reduc[ing] the scope of current export
controls….[which] have been used to
stop the sale of materials that could
eventually harm U.S. military
personnel.”⁽²⁾

Among the noteworthy improvements to
H.R. 3937 proposed by the Armed Services
Committee were the following:

Reestablishing a
Statutory Role for the Secretary
of Defense in Making Up the
Control List: Although
the HFAC version of H.R. 3937
would have stripped the Secretary
of Defense of any statutory role
in compiling the list of goods
and technologies subject to
export controls, the
Armed Services Committee
amendment reestablishes the
Defense Secretary’s authority as
provided in current law.
Additionally, the HASC bill would
prevent the Secretary of Commerce
from deleting items from the
control list without the
concurrence of the Secretary of
Defense. These provisions reflect
historical experience — namely,
that the Commerce Department, if
left to its own devices, would
approve virtually any
technology transfer to virtually any
end-user.

Restoring the Pentagon
Responsibility for Reviewing
Export Licenses: The
bill reported by the HFAC would
also have deprived the Secretary
of Defense of any statutory
authority to review applications
for export licenses in order to
determine whether or not the
proposed export would enhance the
military capabilities of American
foes to the detriment of U.S.
national security. The
Armed Services Committee
responded by giving the Defense
Secretary assured authority to
review licenses for products
related to weapons of mass
destruction.

Reestablishing a Sensible
Standard for Controlling Exports:
The Foreign Affairs’
version of H.R. 3937 would have
required a further narrowing of
the standard now used to judge
whether or not an export can be
controlled. Under the HFAC bill,
an export would have to be seen
as posing “a threat to the
national security,” a
definition which would be
difficult to prove in many cases
and would therefore unduly
constrain what is already an
inadequate list of controlled
technologies. The Armed
Services Committee restores the
standard under existing law which
authorizes export controls for
goods or technologies which could
“prove detrimental to the
national security” of the
United States.

Setting More Reasonable
Deadlines: The HFAC
substantially constrained the
time allotted to U.S. government
agencies involved in the export
license review process. For
example, the Commerce Department
would be given only 10 days
to act on a license application,
versus the 60 days provided by
current law. Although the Armed
Services Committee retains this
10-day time constraint for
licenses which do not require
referrals to other agencies, the
HASC would allow an additional 30
days for licenses which required
referral to other U.S. government
agencies. In a limited
number of precedent-setting
cases, this time deadline could
be extended further.

Adding Sanity to the
‘Foreign Availability Provision’:
The Armed Services Committee’s
bill would require that the
Secretary of Defense concur with
a determination of foreign
availability made by the
Secretary of Commerce.
Since positive findings of
foreign availability set in train
a process of permanently
decontrolling a good or
technology, such concurrence
provides an important check on an
incautious export licensing
program. Additionally, the Armed
Services Committee’s amendment
deletes a ridiculous provision in
the Foreign Affairs’ bill that
would have required the Secretary
of Commerce to decontrol anything
that would “be available in
fact within two years in the
future,” — a highly
speculative and subjective
standard. Importantly, the House
Armed Services Committee also
reestablishes the burden of proof
in foreign availability cases
back to where it belongs, i.e.,
from the U.S. government to the
would-be applicant.

Preventing Automatic
Decontrol of Computers: Significantly,
the Armed Services
Committee bill would prevent the
Secretary of Commerce from
automatically decontrolling
computers and computer technology
without the concurrence of the
Secretaries of Defense and
Energy.

Providing for Unilateral
Controls When Needed: The
Foreign Affairs Committee bill
would have effectively prevented
the President from imposing
unilateral controls as he would
have been required to certify
that there were “no other
alternative means” of
stopping the transfer abroad of
the technology or good in
question. The Armed Services
Committee amendment provides the
President with some leeway in
imposing export controls
unilaterally by removing the
excessively stringent “no
alternative means” standard.

Preventing Exclusive
Jurisdiction by Commerce over
Space Equipment: The
Armed Services Committee bill
deletes a provision included in
the Foreign Affairs’ mark-up that
would have given the Secretary of
Commerce exclusive
jurisdiction over space launch
equipment — including space
launch vehicles that are
indistinguishable from ballistic
missiles. Such an arrangement
will only exacerbate an already
acute problem involving, for
example, Commerce’s efforts to
push through approval of the sale
of a missile “bus”
capable of being used by China to
deploy Multiple Independently
Targetable Reentry Vehicles
(MIRVs) as well as commercial
satellites.

Requiring Licenses for
Sensitive Exports: The
Armed Services Committee version
of the EAA bill would also
require the President to compile
a list of the most sensitive
exports that should be withheld
from Iran, Iraq, Syria, Libya,
Cuba and North Korea. Exporters
wishing to sell any of
these particular items anywhere
abroad must obtain licenses
to do so — improving the
likelihood that potential
diversions will be tracked.

The Intelligence Committee
Joins the Fray

Importantly, the House Armed Services
Committee was joined in its effort to
salvage the national security interests
jeopardized by the HFAC version of the
Export Administration Act by the House
Permanent Select Committee on
Intelligence (HPSCI), which also insisted
on a review of the Foreign Affairs’ bill.
On 15 June 1994, the HPSCI addressed two
provisions with dangerous ramifications
for the U.S. intelligence community.

Preventing Compromising
of Intelligence: First,
the Foreign Affairs Committee
bill would have required the
Central Intelligence Committee to
consolidate all of its
intelligence information bearing
on controlled end-users and to
have this material available to
the Commerce Department in
computerized form no later than
the end of this year. The
House Intelligence Committee
determined unanimously that this
provision would not only cause a
serious drain on CIA resources,
it would also violate the
important present requirement
that such classified information
remain compartmentalized and
compromise the protection of
sources. As a
consequence, the provision was
deleted.

Preventing Decontrol of
Encryption Technology: Second,
the Intelligence
Committee deleted a Foreign
Affairs Committee provision that
would have substantially
decontrolled encryption
technology viewed as “vital
to the U.S. intelligence
community.”⁽³⁾
The Committee notes, for example
that “the Committee recently
received a thorough, classified
briefing on the damaging
implications of altering the
present encryption export control
regime” and that “the
Committee on Foreign Affairs does
not adequately address the
national security interests put
at risk by the uncontrolled
export of encryption.”
Instead, a study by the President
on the international encryption
market is commissioned and
existing regulatory procedures
and authorities are kept in
place.

While there remain serious problems
with the reauthorization of the Export
Administration Act — such as the
creation of a license-free zone for
countries belonging to a multilateral
export control regime (e.g., the Missile
Technology Control regime) — the House
Armed Services Committee, as well as the
House Intelligence Committee, have
brought to bear a long-needed national
security focus to the subject of U.S.
export controls. As the Center for
Security Policy has chronicled over the
past five years, leaving this important
issue exclusively under the jurisdiction
of the House Foreign Affairs Committee
has been a damaging and costly mistake.

Portentous Promises to
Yeltsin

Never has this proposition
been more true, however, than it is at
present. After all, at their
summit on the margins of the Naples
Economic Summit, Russian President Boris
Yeltsin managed to secure a promise from
President Clinton that trade
restrictions on militarily critical
technologies will be lifted against
Russia in time for their next
scheduled rendezvous in Washington, D.C.
in late September. Obviously
well pleased with this pledge of
unprecedented access to state-of-the-art
military and related Western civil
technologies, Yeltsin crowed: “This
time we didn’t ask for money….As a
matter of fact we are a little displeased
at having received not even half of what
was promised to us in Tokyo in 1993, but
that’s not what’s most essential….
We’re saying, ‘Give us equal rights’ [to
trade relations on equal terms.]

The most colorful moment of the press
conference came when Yeltsin claimed he
was due no less than equal treatment
because, as he declared, “I’ve taken
that red, besmirched jacket off of
myself.” While President Yeltsin may
or may not continue to don the figurative
garb of the communist party apparatchik
he was until very recently, it is clear
that many others in the Russian
government find the present moment a
convenient one to dress as wolves in
sheep’s clothing in order to acquire
valuable dual use technology.⁽⁴⁾
Unless corrected through the
formal adoption by the full House of
Representatives of the Armed Services
Committee’s en bloc amendments
to the new Export Administration Act,
this legislation will serve greatly to
exacerbate the dangers posed by President
Clinton’s appalling prospective export
decontrol initiative.

The Bottom Line

The fate of the HASC
amendments, however, lies to a
considerable degree in the hands of the
House Rules Committee. It will meet
Tuesday afternoon to decide under what
circumstances the Armed Services
Committee’s amendments, a substitute
proposed by the Foreign Affairs Committee
and those that might be offered by other
Members of Congress will be in order.
With its decision, the Rules Committee
can do much to create conditions required
to fix H.R. 3937’s myriad defects — or
to fix the HASC’s “wagon” for
presuming to interfere in a wholesale
gutting of the Export Administration Act,
apparently orchestrated by Messrs.
Gejdenson and Roth with the enthusiastic
support of the Clinton Administration.

It can only be hoped that the Rules
Committee will permit a fair and honest
debate on the House Armed Services
Committee’s efforts to
“perfect” the EAA. The
consequences of its failure to do so will
be a perfect disaster:
adversaries around the globe (including,
quite possibly, in Russia) will be better
and more dangerously armed, thanks to
American technology, and Americans will
inevitably be faced with the need for
greater defenses to offset the dire
repercussions of the Clinton
Administration’s reckless abandon of
still-needed U.S. export controls.

– 30 –

1. For an analysis
of the House Foreign Affairs Committee
bill, see the Center’s Decision
Brief, Export Decontrolers Make
the Counter in U.S. Counter-Proliferation
Policy Stand for Counter-Productive
(No. 94-D 60,
14 June 1994).

2. House Armed
Services Committee Report, “Omnibus
Export Administration Act of 1994,”
17 June 1994, Rapt. 103-531, Part 4, p.
11.

3. House
Intelligence Committee Report,
“Omnibus Export Administration Act
of 1994,” 16 June 1994, Rapt.
103-531, Part 2, p. 3.

4. See the
Center’s Decision Brief, Restoration
Watch # 4: A Russian Weimar Republic Is
an Unworthy G-7 Partner, Unreliable Ally
(No. 94-D 70, 8
July 1994).