The Looting of Russia
An FBI agent and an honest Moscow cop stop the plundering of the national treasury
Golden ADA had become a potential political scandal, with implications for the United States and the rest of the world. Boris Yeltsin was up for re-election, and the opinion polls showed him trailing the Communist candidate. "What if this turned into Russia's Watergate?" Davidson wondered. Yeltsin's top aides already were mired in scandal; if his inner circle were tied to Golden ADA, it could throw the election to the Communists. In Washington, Justice Department officials briefed the staffs of the National Security Council and Vice President Gore, who was then deeply involved in U.S.-Russian relations. Davidson remembers feeling uneasy. "We were worried about political interference," he says. The FBI's team pressed on, amassing evidence of racketeering, theft, and money laundering. Davidson prepared a request for new wiretaps and asked Belgian authorities if he could question Kozlenok. Davidson thought the FBI-Moscow team had a chance to blow the case wide open.
But then came some very bad news.
Davidson's supervisor was on the phone. "What do you know about the IRS raiding Golden ADA tomorrow?" his boss asked. Davidson was aghast. Without consulting him, prosecutors had given approval to the IRS to seize the company's assets. This meant the end of the criminal case. Kozlenok already had fled; with tax agents on their trail, other Golden ADA figures were not likely to stick around. The wiretaps would be useless.
The two men headed to the Strike Force office, where they confronted the prosecutors. "How can you do this?" shouted Davidson's supervisor. But the attorneys wouldn't budge. Golden ADA's assets, they said, were disappearing--the artwork, the gems, the Aston Martins--and getting evidence from Moscow promised to be tough at best. Why not seize what remained and let the Russians handle the prosecution, they argued. But Davidson felt betrayed.
The next day, a team of 50 IRS agents fanned out across Northern California, seizing Golden ADA's headquarters and other assets. The IRS hit the company with what officials say is the largest civil lien in their agency's history: a $63 million bill for unpaid taxes. As it turned out, the U.S. attorneys may well have been right. The IRS action managed to grab a huge shipment of gold, jewelry, and more than 3,000 diamonds that had just been sent to Switzerland--four fifths of Golden ADA's remaining inventory. At the firm's San Francisco office, IRS agents found dozens of automatic weapons, thousands of ammunition rounds, bulletproof vests, and 25 pounds of explosives. The IRS raids forced Golden ADA into bankruptcy. The firm left behind a tangle of lawsuits and a list of creditors 20 pages long, ranging from the Russian government to the local parking garage. Of the original $178 million in treasure, the IRS seized $40 million in assets. Under a deal struck last April, Russia will recover about $25 million, the IRS gets $10.5 million, and the rest goes to other creditors.
Still, Davidson refused to give up. He continued his work with Zhirov, who made two more trips to San Francisco. In an unprecedented show of cooperation, U.S. prosecutors allowed Zhirov and his team to go through 20,000 documents and question a dozen people tied to Golden ADA. Zhirov returned to Moscow with evidence that was difficult to ignore. In February 1996, while putting the final touches on a new contract with De Beers, a surprised Bychkov was arrested for "criminal negligence" and violating foreign-exchange law and was summarily fired by Yeltsin. Bychkov's entire agency was disbanded, and control of the national treasury was turned over to the Finance Ministry. Thirteen others were indicted, including top officials on Bychkov's staff and in the Ministry of Foreign Economic Relations. Facing a 10-year sentence, Bychkov admitted his guilt when, weeks later, along with eight others tied to the case, he was pardoned under a general amnesty that marked the 50th anniversary of the end of World War II. The ever resourceful Bychkov is now vice president of one of Russia's largest banks and remains a power in the nation's diamond industry. He blames his problems on Kozlenok, De Beers, and political enemies. "To act as Golden ADA acted, either you'd have to be stupid or else somebody powerful must have led them to do it," he says without irony.