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Corruption Watch: July 14, 2005

14 July 2005, Volume 5, Number 6
By Roman Kupchinsky

The 7 July coordinated terrorist attacks against the public-transportation system in London was just the latest of many such attacks against subways around the world. It has left analysts scrambling to come up with ways to protect these vulnerable targets.

On 18 February 2003, a 56-year-old-man who had suffered a stroke in 2001 that left him partially paralyzed entered the subway in the South Korean city of Daegu shortly after rush hour began and ignited a plastic milk carton filled with a flammable liquid. The ensuing fire rapidly spread to another car, putting some 400 passengers at risk. In the end, the inferno left 130 people dead and 139 injured.

That tragedy raised a number of questions, not least of which was what security measures can be put in place to prevent similar attacks by terrorists? While civilian aircraft are considered prime targets for terrorists and billions of dollars are spent each year to provide security for airline travelers, it would seem that too little is being done to protect the hundreds of millions of people riding subways in cities all around the globe.

However, answers to these questions have not been easy to find.

Almost exactly one year after the Daegu incident, at 8:30 a.m. local time on 6 February 2004, a powerful explosive device detonated in the second car of a train in the Moscow subway. The force of the explosion pushed out the metal sides of the car, tore a hole in the roof, and collapsed the car behind it. According to official figures provided to the RosBalt news agency on 17 February by the Federal Security Service (FSB), 40 people were killed.

Protecting Subways

Underground transportation systems are among the most difficult objects to protect from terrorist attacks. Given the huge volumes of travelers they service and the numerous stations they have -- in New York City, there are 468 stations, while London's underground has 273 stations -- it is nearly impossible to control the millions of passengers entering during rush hour carrying backpacks, shopping bags, attache cases, and the like -- or, perhaps, wearing a vest bomb concealed under a baggy jacket.

Subway systems, which have multiple turnstile entrances and where trains enter the station just minutes apart, create many more security challenges than airports, where large groups of passengers can be funneled to undergo screening and have their bags searched. Moreover, airplanes can be delayed if authorities deem it necessary, while subway lines must keep moving.

Checking public-transport passengers for explosives or flammable liquids in plastic or glass containers is an imperfect and often impractical solution. It would lead to long delays and still not be able to guarantee safety.

The U.S. General Accounting Office (GAO) has reported that, while there are a number of advanced explosives detection devices commercially available that can increase the probability of detecting concealed explosives, "all of them have performance limitations. "For example, some devices can detect only certain explosives, while others have slow luggage processing rates; others rely almost entirely on the skills of the operators rather than on automatic alarms," the GAO report reads. A summary of the GAO findings can be found at

The use of security cameras to monitor the behavior of passengers inside subways has proven nearly useless. All they can monitor is a crowded passenger car or platform and might possibly show a person igniting a bottle filled with gasoline and show a split second of the flames that follow. The cameras have little defensive value beyond the slight chance they might capture a known suspect on film, providing the person monitoring the image knows whom to look for. Cameras also have a slight deterrent effect by signaling to a potential bomber that someone is watching.

One known example of police being able to disrupt a subway attack took place in New York City in 1997 when the FBI foiled a plan by two Palestinian would-be suicide bombers to detonate five pipe bombs at one of the city's major subway stations. The authorities apparently were able to thwart the plot through inside information.

"The Washington Post" reported on 9 April 2003 that: "Captured Al-Qaeda operations chief Khalid Sheikh Muhammad has told interrogators that his organization had plans to attack the Metrorail system in Washington, possibly by igniting a fire, according to law enforcement officials.... Two law enforcement sources said the attack on the Metro would have involved a fire or firebombing. One said the Capitol Hill area was a likely target."

The accuracy and reliability of this testimony can be debated, but there can be little doubt that Al-Qaeda has been looking into possible attacks on subways in cities like Washington, D.C., or New York City.

Coordinated Attacks

The coordinated attacks on the London subway system during the morning rush hour on 7 July, during which some 49 people were killed and hundreds injured, have once again raised questions about public-transport security.

The most common question being asked today concerns the use of coordinated attacks. How easy is it for a terrorist group to coordinate three or four attacks and thereby multiply the chaos and tax a city's emergency services? The answer is that there is nothing very complex in planning such attacks. For four or five members of a conspiratorial group to carry out simultaneous actions is not a recent development, nor is it anything that Al-Qaeda perfected.

During the Algerian war for independence, the Algerian nationalist organization FLN used this tactic often and launched coordinated bomb attacks against cafes, airline ticket offices, and other establishments in Algiers popular with the city's French population. Little more is needed than elementary communication and the ability to tell time.

Even primitive explosive devices can be rigged with timers to explode simultaneously.

Michael Oren of the Shalem Center think tank in Jerusalem was quoted by AP on 10 July as saying that coordinated attacks have become more sophisticated in Israel as well. "In Israel, we've had coordinated bombings, but they've never been that close," Oren said. "If they've got down to a minute that would be an all-time record. The use of timers is not rocket science, but it still shows a level of sophistication which is beyond just sending somebody with an [explosive] belt."

A time lapse between attacks of a few minutes is not uncommon and does not really matter since the evacuation of other Metro stations or trains after the first blast cannot begin so quickly.

In the London case, the explosive devices were reported by the press to have been crudely made bombs. On 8 July, AP quoted Andy Oppenheimer, a weapons expert and consultant for Jane's Information Group, as saying that the bombs were made from "relatively easy-to-obtain plastic explosives, not the higher-grade military plastics such as Semtex." Police said after the bombing that the bombs weighed less than 4.5 kilograms each.

Bargain-Basement Bombings

Another factor acting in favor of the subway bomber is cost. Crude bombs such as the ones used in London, Moscow, or by the lone subway arsonist in South Korea are inexpensive to construct.

One expert quoted by the BBC gave an estimate of $10,000-$15,000 for the 7 July attacks in London. She said that since the bombs cost so little, it was probably possible for the organizers to raise the funds locally and avoid bank transfers that could attract the attention of the authorities.

Gasoline might just be the cheapest potential terrorist weapon. No one needs a money-laundering scheme to start a fire with gasoline. Moreover, it is unlikely that current security techniques would be able to prevent such attacks.

Analysts Mortimer Downey and Thomas Menzies, in an article entitled "Countering Terrorism In Transportation" in the periodical "Issues In Science And Technology," Summer 2002, discuss the difficulties of combating such terrorism in public-transportation networks.

"Understanding what deters terrorists is crucial for designing effective and efficient security systems, especially in a spread-out and heavily used transportation system," they wrote. "If you can't physically protect or eliminate every vulnerability, then it is important that you find ways to deter the act in the first place. Doing so will require a fair amount of creativity and innovation in security methods. This means employing tactics such as randomizing security screening, routinely setting traps, clandestine policing, and masking detection capabilities, that effectively create layers of uncertainty and inhibit terrorist activity through what have been called 'curtains of mystery'."

By Roman Kupchinsky

In a dramatic announcement that could have far-reaching consequences, Oleksander Turchinov, the head of the Ukrainian security service (SBU), stated on 18 June that criminal cases have been opened concerning the activities of two offshore companies involved in gas-transportation schemes from Turkmenistan to Ukraine, schemes that allegedly deprived the Ukrainian treasury of more than $1 billion.

In an interview with the newspaper "Zerkalo Tyzhnya" published on 18 June, Turchinov said the SBU has been investigating the activities of two companies -- Eural Trans Gas and its successor, RosUkrEnergo -- which acted as the "operators" of Turkmen gas to Ukraine. Investigators are also probing any role that might have been played in their operations by the management of Naftohaz Ukrayiny, the Ukrainian state-owned energy monopoly.

Russia's Gazprom and Naftohaz Ukrayiny are closely linked to the activities of the two offshore companies under investigation. Turchinov charged that former high-level officials in Ukraine, together with Russia's current leaders, knew of and approved these illicit schemes, Interfax reported.

Also on 18 June, Ukrainian Gas Bank head Vadym Lyashko was arrested as he allegedly was preparing to flee the country, Ukraine's Channel 5 television reported. The Ukrainian Gas Bank was recently investigated for allegedly laundering $59 million for the Ukrainian Transportation Ministry during the administration of former President Leonid Kuchma. The bank is closely linked to Naftohaz Ukrayiny.

Lyashko's arrest and Turchinov's announcement were a long-awaited steps in the realization of President Viktor Yushchenko's and Prime Minister Yuliya Tymoshenko's promise to close down highly suspect schemes in the gas-transportation business that are alleged to be have drained the Ukrainian state treasury of $1.2 billion since 2003.

Thus far there has been no reaction from Gazprom to Tuchinov's allegations.

On 30 July 2004, Russian and Ukrainian media announced that the top management of Russia's Gazprom and Ukraine's Naftohaz Ukrayiny had jointly created a new offshore company to be the "operator" for Turkmen gas to Ukraine. The new company, RosUkrEnergo (RUE), would replace Eural Trans Gas, a Hungarian-based company that had been the center of considerable controversy in the media.

Eural Trans Gas, according to the registration document filed with the Budapest business court, was of curious origin. It listed its place of business as the small village of Csabadi, outside of Budapest, and named three previously unknown Romanians as its principals.

Eural, according to a 2003 interview with Eural Director Andreas Knopp in "The Kyiv Post," was closely linked to Dmytro Firtash, a Ukrainian businessman with interests in Moldova and Turkmenistan and the owner of a number of companies in Ukraine. According to court documents provided by the Itera International group of companies, Firtash's Israeli-registered company, Highrock Properties Ltd., is being sued by Itera, which accuses him of owing them $28 million.

Hermitage Capital Management, an investment fund in Russia that campaigns for minority shareholder rights, published its report on Eural Trans Gas and Gazprom in 2003. This forced Gazprom and Naftohaz to take steps to distance themselves from Eural, a company they helped create. Eural was sold in 2004 to a group of investors and came to be headed by Cedric Brown, the former head of British Gas. Another prominent player in Eural became Robert Shetler Jones, although his exact role was not clear. He was described in "The Kyiv Post" on 16 June as a consultant to another investor in Eural, the British publicly traded firm JKX Oil and Gas, a company with substantial oil-drilling assets in Ukraine's Poltava region.

Despite these changes of ownership, Eural Trans Gas was finally replaced by RUE, which began operations on 1 January 2005.

According to Gazprom and Naftohaz spokesmen, RUE was registered in Zug, Switzerland, on 22 July 2004, and seemingly consisted of two partners -- ARosgas Holding AG, a subsidiary of Gazprombank formed in 2004 that holds 50 percent of RUE, and Raiffeisen Investment AG holding the other 50 percent.

Robert Shetler Jones became a member of the RUE advisory board, while the former head of the Eural Trans Gas office in Moscow, Oleg Palchykov, became one of RUE's managing directors. ARosgas AG shared the same mailing address in Vienna, Austria, as its partner in RUE, Raiffeisen Investment.

Raiffeisen Investment AG, an Austrian company registered in 1993, was described by Gazprom spokesmen as their partner in RUE that looked after the interests of Naftohaz Ukrayiny.

Despite Gazprom's explanations, there was considerable speculation in the press as to the role of Raiffeisen Investment and its exact relationship, if any, to Raiffeisen Bank. Gazprom spokesmen never clarified the relationship, merely repeating that RUE is a "fully transparent" structure.

On 6 August 2004 Interfax reported: "In late July 2004, 100-percent subsidiaries of Russia's Gazprombank and Austria's Raiffeisen Bank created the RosUkrEnergoprom company for the supply of Turkmen gas to the Ukrainian market. The company, shared by the parties 50-50, will be registered in Switzerland. RosUkrEnergoprom will purchase Turkmen gas for the Ukrainian market and act as operator of the gas purchased and investor in the development of the gas-transport infrastructure required for securing the transit. The company will be run by a coordination committee including representatives of the leading officials of Gazprom, Naftohaz Ukrayiny, Gazprombank, and Raiffeisen Bank."

Research has shown that Raiffeisen Investments has no direct management connection to Raiffeisen Bank, although both companies are owned by the Austrian RZB Group.

Furthermore, Raiffeisen Investment is not ARosgas AG's partner in RUE. According to an interview with "The Kyiv Post" on 16 June, Raiffeisen Investment spokesman Wolfgang Putschek stated that the company only manages the portfolio for "a group of Ukrainian businessmen who have worked in the gas industry" and is paid a commission for managing that portfolio. When asked to name the "Ukrainian businessmen," the spokesman declined to do so, citing confidentiality agreements.

Apparently, the "Ukrainian businessmen" whose portfolio's were being managed by Raiffeisen Investment were acting as private individuals, while ARosgas was clearly connected to the Russian state and collected nearly $478 million annually for Gazprom, according to Hermitage Capital Management, a Moscow-based investment company.

The total fee paid to RUE by the Ukrainian state for transporting gas from Turkmenistan, in Gazprom's pipeline, to Ukraine is reputed to be close to $1 billion per year, paid to RUE in the form of 13 billion cubic meters of gas, which it then sells in the West through a variety of agents. This is the same fee that Ukraine paid Eural Trans Gas, according to a contract signed in Moscow in December 2002 that has been made available to RFE/RL.

Asked by Ukrainian journalists at a press conference earlier this year if Naftohaz Ukrayiny is a principal in RUE, Naftohaz Ukrayiny head Oleksiy Ivchenko replied that it is not and that Naftohaz was seeking to buy into RUE so as to have some say in its management and to receive the $478 million the unnamed businessmen are reputed to collect yearly.

Apparently the former management of Naftohaz, headed by Kuchma loyalist Yuriy Boyko, renounced its right to be a principal in RUE and reclaim the $478 million that Ukraine paid RUE for its services, giving its consent instead to a group of unnamed private "Ukrainian businessmen" to collect this money. Boyko, however, rejects any allegations of wrongdoing.

Prime Minister Tymoshenko has stated that as a consequence of the Eural Trans Gas and RUE, schemes, Ukraine lost more than $1 billion, Interfax reported on 15 June.

Gazprom has not come under any official scrutiny in Moscow for its role in the RUE or Eural Trans Gas gas schemes. The lone critical voice was that of Hermitage Capital Management, whose spokesman told "The Moscow Times" on 16 June that Gazprom is losing out on $478 million in annual revenues from the RosUkrEnergo deal and that this money is going to unknown beneficiaries participating in RosUkrEnergo via Raiffeisen Investment.

By Roman Kupchinsky

Pentagon planners have begun reviewing one of the pillars of U.S. military strategy: Should the United States maintain its long-standing policy of being prepared to fight two wars concurrently while maintaining a sufficiently effective counterterrorism/homeland defense?

The debate comes as 138,000 U.S. combat troops are stationed in Iraq, fighting an asymmetrical war against Iraqi rebels at a cost of $5 billion per month.

The current doctrine as described in the "National Military Strategy of the United States of America 2004" (NMS) reads as follows:

"Protecting the United States, preventing conflict and surprise attacks, and prevailing against adversaries will require forces appropriately sized and shaped in accordance with the NDS [National Defense Strategy] force-planning construct. The force must be sized to defend the U.S. homeland while continuing to operate in and from four forward regions to deter aggression and coercion and set conditions for future operations. Even when committed to a limited number of lesser contingencies, the Armed Forces must retain the capability to swiftly defeat adversaries in two overlapping military campaigns. Additionally, when the president calls for an enduring result in one of the two, the force must have the capability and capacity to win decisively."

Key Question

The proposition that Pentagon policymakers are debating is the following: Does the United States have the capability to produce an "enduring result" in one of two "overlapping campaigns"? The outcome of that debate could have a fundamental impact on the way the United States conducts its foreign and defense policies in the years to come.

The NMS states that such a review is needed: "Our experiences in Afghanistan and Iraq highlight the need for a comprehensive strategy to achieve longer-term national goals and objectives."

The "Quadrennial Defense Review" is a reevaluation mandated by Congress every four years. The coming study should be presented to Congress in February and will presumably touch on such fundamental issues as:

* Are U.S. forces prepared and capable of winning a conventional war against Iran or North Korea while maintaining current troop levels in Iraq?

* Does the Iranian or North Korean military and political leadership believe that the United States is willing and prepared to attack; and, if so, is this moderating their behavior?

Credible Power?

At stake in today's debate is the fundamental question of the perceived limits and credibility of U.S. military power. Can U.S. power be used as a deterrent to discourage conflicts from becoming hot wars? The NMS states: "The United States requires a broad set of options to discourage aggression and coercion. Nuclear capabilities continue to play an important role in deterrence by providing military options to deter a range of threats, including the use of WMD/E and large-scale conventional forces."

China, Iran, and North Korea were named by "The New York Times" as states that the Pentagon debate has suggested are possible opponents in a future conflict. Can any combination of two of the above be defeated in a conventional war while homeland security is maintained at a high level against terrorist attack?

Furthermore, analysts and tacticians need to consider whether two concurrent major conflicts are winnable without the deployment of nuclear weapons? Could they be lost even with the use of nuclear weapons by the United States?

In its report on this policy debate, "The New York Times" reported on 5 July that: "In effect, the unusual mission in Iraq, which could last for years, has not just taken the slot for one of the two wars; it has upended the central concept of the two-war model. It is neither a major conventional combat nor a mere peacekeeping operation. It does not require the full array of forces, especially from the Navy and the Air Force, of a conventional war, and it takes far more troops than peacekeeping ordinarily would."

This debate apparently does not attach any great significance to the role of NATO in any future major conflict and seems to assume that, in a future conflict, the United States would be expected to fight without significant support from its allies. "The New York Times" does not mention NATO; nor does it specify whether the use of nuclear arms is included in the discussion and only talks about "conventional" warfare. This seems unusual, since both China and North Korea are known to possess nuclear weapons and delivery systems and might be inclined to use them if they felt threatened.

"The New York Times" quoted an unnamed Pentagon official who stated: "After years of saying American forces were sufficient for a two-war strategy, 'we've come to the realization that we're not,' said another Defense Department official involved in the deliberations, who was granted anonymity because he could not otherwise discuss the talks, which are classified. 'It's coming to grips with reality.'"

Conceivable Risks

The cost of fighting two conventional wars and maintaining an effective homeland security defense against terrorism could conceivably run over $10 billion per month. Such a sum could prove unsustainable if two theoretical opponents were not defeated quickly. Two prolonged conventional wars would have a serious impact on the U.S. economy, and past experience has shown that -- unlike theoretical nuclear conflicts, which are expected to conclude quickly -- conventional wars last much longer.

In addition, the current strategy of fighting two conventional wars at the same time involves a number of risks:

* It could lead to a huge increase in taxation with predictable political consequences for the party occupying the White House if the wars are seen as not filling legitimate national security needs.

* The U.S. armed forces would be under strain to find the manpower needed to maintain regular combat operations without reintroducing the draft, an unpopular measure unless the nature of the conflicts were clearly popular.

* Any war involving China or North Korea, two states with nuclear weapons, might conceivably bring Russia, also armed with nuclear weapons, into the conflict -- thus escalating it beyond control.

The current strategy held by the U.S. Department of Defense holds that to be successful, the armed forces cannot rely on overwhelming numbers: "Force application focuses more on generating the right effects to achieve objectives than on generating overwhelming numbers of forces. The application of force against widely dispersed adversaries, including transnational terrorist organizations, will require improved intelligence collection and analysis systems."

The military's experience so far in Iraq -- unlike during Operation Desert Storm in Kuwait -- has shown that the application of force alone cannot defeat even a far weaker and poorly armed enemy.

How it might fare in the event of another, concurrent, conflict with a better-armed and highly motivated enemy is the crux of the current review.