'In Russia…Outlaws Run The Banks'

When President Clinton met Friday with Russian President Vladimir Putin during the G8 summit, high on the list of subjects was how to get the Russian economy back on track. CBS News Correspondent Bill Plante reports from the White House that it's not just a case of an economy gone sour.

Russia is the world's second largest nuclear power. But despite billions of dollars in western aid, it remains on the verge of economic collapse. Crime and corruption have reduced it to a state of near lawlessness and some think the United States shares some of the blame.

Before Putin was sworn in as Russia's second president, he granted a blanket pardon to Boris Yeltsin and his family for any crimes committed while Yeltsin was in office. It was part of the deal that brought Putin to power and it's no wonder that Yeltsin insisted on it. Billions of dollars poured out of the country on Yeltsin's watch.

"In Russia today it's quite vogue to make analogies to the Wild West," said Rep. Jim Leach, Republican and Chairman of the House Banking Committee. "But there are some differences. The big one is in the West, the criminals robbed the banks. In Russia today, the outlaws are running the banks."

Many of those outlaws were part of the old Soviet establishment, people appointed by Yeltsin to run state institutions and what would become Russia's financial system. And after Yeltsin's re-election, things only got worse. Those who helped him win began to cash in. Organized crime groups acquired former state enterprises at prearranged auctions. They bribed officials and legislators to gain special treatment.

"Billions of dollars, much of it taxpayers' money through the IMF and the billion dollars a year that we spend as a nation in Russia, has gone down a rat hole," said Rep. Curt Weldon (R-Penn). "Designed to provide roads and schools and bridges for the Russian people, it ends up in Swiss bank acounts and U.S. real estate investments as Yeltsin's friends benefited."

According to Russia's former prosecutor general, U.S. officials were well aware of what was going on.

Until recently, the foreign policy of the United States concerning Russia was based on absolute and unquestioned support of Yeltsin. The American administration closed its eyes as to whether the money was being spent properly, whether the money reached its proper destination.

Critics of the Clinton administration say the U.S. based too much of its policy on the personal relationship between Mr. Clinton and Yeltsin.

"We ignored and neglected a country that spans 11 time zones, listening to a handful of individuals who are Harvard schooled and spoke our language, but at the expense of a huge country that now blames the United States for the position Russia is in today," said Frank Cilluffo, of the Center for Strategic and International Studies.

Supporters insist the administration had no choice but to play the hand it was dealt in order to support democracy in Russia and U.S. national security objectives.

"They have been busy trying to build the institutions even as they try to deal in very important ways with the person or persons who can make things happen," said Sen. John Kerry, D-Mass. "For instance, how do you reduce the threat of nuclear weapons faced at the United States? You've got to get an order from the president, Yeltsin, to change the targeting."

Which leads to another major concern. Russia still has 10,000 nuclear weapons. Many members of the Russian armed forces go for months without getting a paycheck. The Red army is riddled with corruption. Sales of military hardware on the black market are commonplace. But what really worries U.S. officials is the possibility that nuclear or biological weapons material could be sold by criminal syndicates to terrorists or rogue states.

"Nothing is more important to us than trying to guarantee that we can lock the door on the transfer of those kinds of items and we need to pay far more attention to that, frankly, than all of this talk about missile defense," said Kerry.

Putin's dilemma is how to break the power of the corrupt. He, too, was elected by people with a vested interest in the status quo. Unless he declares war on crime, the Russian economy is likely to remain on the sidelines.

"The future of Russia is dramatically in the balance," said Leach. "That means our relationship with one of the most important countries in the world, in terms of nuclear arms and a whole spectrum of political issues."

Mr. Clinton's challenge, for example, is to pressure Putin on corruption while not appearing to meddle in Russian internal affairs. But the big fear is that in order to gain control of the situation, Putin may use draconian measures and make a mockery of Russia's attempt at democracy.

According to Yuri Skaratov, the former prosecutor general, ther is no evidence that Putin is corrupt. "But he has been instrumental in blocking a number of investigations into Yeltsin's inner circle. And of course he granted Yeltsin and his family that unconditional pardon."

The fear is that the United States will become associated with the corruption of the Yeltsin era and lose faith not only in western values but in the west itself. And there is some indication that that is in fact the case already.