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From Russia With Diamonds 

In 1995, Golden ADA Inc., a San Francisco diamond-importing firm, collapsed, unveiling an international trail of theft and betrayal that embarrassed San Francisco luminaries involved with the company. Now, newly unsealed court files show that high-level m

Wednesday, Jul 1 1998
A Convenient Suicide, Moscow, Russia. February 1998.
Sergei Dovbysh, a former official of the Russian Interior Ministry, is found dead in a Moscow holding cell. A length of piano wire is twisted around his broken neck. The coroner's verdict is suicide. Informed observers -- including U.S. government law enforcement officials -- believe Dovbysh was "whacked" because of his association with Golden ADA Inc., a bankrupt diamond-polishing firm based in San Francisco.

Four months later, soothed by the rosy glow of the mahogany veneer walls of federal bankruptcy court in San Francisco, lawyers from the venerable San Francisco law firm of Pillsbury Madison & Sutro LLP -- and their white-haired client, Golden ADA trustee Charles E. Sims -- appear before Judge Dennis Montali. Pillsbury and Sims ask Montali to approve nearly $2 million in attorney and bankruptcy trustee fees -- fees earned for half a year's work brokering a deal between the U.S. Internal Revenue Service and the Russian Federation. The lawyers, the Russians, the IRS, and other creditors will be paid from the picked-over remains of Golden ADA, which once owned $180 million in diamonds and gold -- and now has a paltry $44 million in known assets.

No one knows, exactly, where the $130 million-plus difference has gone.
Judge Montali approves the fee requests. Untangling the spaghettilike financial disaster known as Golden ADA has required an incredibly time-consuming international paper-chase. The judge congratulates Sims and his attorneys for settling a hodgepodge of dueling lawsuits and avoiding additional years of litigation. (Sims, whose task as trustee is to liquidate Golden ADA's assets and pay off creditors, says he is so emotionally consumed by the case that he dreams about it at night.)

But many of the strangest aspects of the Golden affair -- including the death of Dovbysh -- probably will not spark serious criminal investigation or prosecution, here or in Russia. There are just too many possible suspects, and too many good motives, when $130 million in diamonds and gold disappears in a puff of smoke and thievery. Especially when the diamonds and gold belong to the Russian government.

And when some of the people who helped them disappear have offices at the Kremlin.

Diamond Contracts Aren't Forever. Moscow. Winter 1992.
The ex-Soviet Union supplies a quarter of the world's rough diamonds, and Russian diamond cutters have perfected the art of igniting the inner fire of their country's diamonds, making them a connoisseur's delight. Recently, however, the cash-poor Russian government has had a diamond problem: In 1990, as the Cold War was ending, the Russians signed a contract with DeBeers Consolidated Mines Ltd., the South African diamond firm that runs a cartel controlling much of the world diamond market.

In return for the right to buy most of Russia's stones, the DeBeers-run Central Selling Organization guaranteed the Russians $1 billion a year in sales. The contract, however, severely restricted the amount of both rough and finished diamonds that Russia was allowed to sell abroad on its own. The contract was aimed at limiting the world supply of diamonds, so prices could be kept high.

Since 1990, as the economy of the former Soviet Union has jerked away from state control and toward something that Westerners want to describe as a free market, many sectors of that economy have come under the sway of overthrown government bureaucrats -- the once all-powerful nomenklatura -- and Russia's version of organized crime, the Mafiya, or Vorovski Mir (Thieves World). Crime experts say Vorovski Mir now controls 40 percent of Russia's wealth and is closely intertwined with the government bureaucracy, including Russia's intelligence services. Meanwhile, the dethroned nomenklatura have been transformed into a class of rich owners overseeing Russia's newly privatized industrial-financial conglomerates.

This international combine of lawless current and former bureaucrats and the Russian underworld operates businesses in more than 30 countries. Smuggling misappropriated state assets out of the country and transforming them into hard Western currency is a Vorovski Mir specialty.

At some point in the early '90s, DeBeers' control of the diamond market began to annoy the amalgam of government bureaucrats, ex-Communist Party officials, and organized criminals that was privatizing Russia's formerly state-owned mineral and gem industry. At some point, a plan to smuggle large amounts of diamonds abroad, where they could be sold free of the restrictions of the DeBeers cartel, was hatched. And it appears that the order to smuggle those diamonds -- and undermine the DeBeers stranglehold on the market -- was approved somewhere very near the top floor of the Kremlin.

Exactly how near is a touchy question, the answer to which could have international ramifications.

Minister of Many Aspects. Russian Federation. 1992.
If a new Dostoevski is emerging somewhere in the new Russia, he might well look to Boris G. Fyodorov as a model for the conflicted protagonist of a first novel. At least from afar, Fyodorov appears to symbolize the uncertain, chimerical transformation of a centralized Soviet Union into a confused Russian Federation.

And explaining Fyodorov appears to be necessary to telling the tale of $130 million in Russian diamonds and gold that came to San Francisco -- and vanished in a whirl of extravagance and lies and conspicuous consumption.

In 1992, Russian President Boris Yeltsin named Fyodorov, then a 35-year-old banker, as his minister of finance. Fyodorov -- described in press accounts as both brilliant and arrogant -- quickly became known in the West as part of a reform-minded youth movement at the Kremlin. He advocated for quick transformation to a market-based economy. In 1994, apparently acting as a matter of conscience, Fyodorov resigned from Yeltsin's government, complaining that holdover Soviet-era managers were hamstringing reform.

Fyodorov's reputation as a reformer has continued in much of the Western press. In fact, Yeltsin recently brought Fyodorov back into the government, naming him the country's minister of taxation. Major U.S. newspapers approvingly quoted Fyodorov last month as he promised he would investigate, for tax purposes, the consumption habits of 1,000 of the country's wealthiest and best-known citizens.

About The Author

Peter Byrne


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