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Corruption Watch: March 25, 2004

25 March 2004, Volume 4, Number 9
During the height of the morning rush hour on 11 March, 10 bombs exploded on commuter trains entering Madrid train stations, killing 201 people and injuring some 1,400 others. Initial reports quoted Spanish authorities suggesting that the Basque terrorist group ETA was responsible for the attacks. That theory was soon modified after evidence emerged that an Islamic group might have been involved in the bombings. By 16 March, Spanish police had arrested six suspects and released information about an audio recording in their possession of a man purporting to be Al-Qaeda's head of operations in Europe claiming responsibility for the attack. Three of those arrested were Moroccan men living in Spain, one of whom was identified in "The New York Times" of 15 March as having had links to an alleged Al-Qaeda cell in Spain.

On 14 March, three days after the attacks, general elections were held in Spain in which the ruling Popular Party lost to the underdog Socialist Party. Many media reports linked the Socialist victory to the party's stand against the invasion of Iraq. As further information emerged to suggest that Al-Qaeda might have been responsible for the attacks as retribution for Spanish support of the invasion of Iraq, the voters, according to this version of events, voted the government out of office. European media, however, were quick to speculate that one of the main reasons for the unexpected Socialist victory was the government's perceived manipulation of information regarding the suspected perpetrators in order to bolster its position in the upcoming election.

The attacks on Spanish railcars apparently caught authorities off-guard, raising questions as to the preparedness of European law-enforcement organizations and their ability to prevent future attacks on such "soft targets" as mass-transit systems.

Will the loose-knit terrorist network take heart from its "Spanish victory" and proceed to attack other European countries with large Moslem populations and, in this way, distance the United States from its traditional allies?

Europe faces a host of potential security gaps, from the border-free travel enshrined in the Schengen agreement, to the massive illegal border crossings of Moroccan immigrants into Spain, to the specter of a radicalized Muslim population.

Charles Kupchan, a professor of international affairs at Georgetown University, wrote in the "Los Angeles Times" of 3 March: "The European Union is already home to about 15 million Muslims, and this number is expected to double by 2015. About 5 million Muslims live in France alone. Although at least one-half of France's Muslims are French citizens, the community as a whole has been growing more radicalized. A sense of social isolation (many Muslims live in urban ghettos) and of disenfranchisement (there is not a single Muslim in the National Assembly) has been fueling a mounting and angry Islamic fervor."

Another major concern is the perceived inability of European police forces to coordinate and exchange information effectively. Europol is viewed by some observers as weak and ineffective for antiterrorist operations, while Interpol is not structured to gather human intelligence. RK

A security officer stationed with the Ukrainian Embassy in Berlin came forward in a Deutsche Welle broadcast on 18 February to accuse the head of the Ukrainian Security Service's (SBU) foreign-intelligence directorate of ordering illegal surveillance of political opponents of Ukrainian President Leonid Kuchma. The interview with SBU Major General Valeriy Kravchenko was broadcast on Deutsche Welle's Russian-language service. A 30-year veteran of the KGB and subsequently SBU, Kravchenko volunteered for the interview. He said he wanted to make a statement concerning what he believed were illegal orders from his superior, the head of the SBU's foreign-intelligence directorate, Oleh Syniansky. Kravchenko claimed to have been ordered to conduct surveillance on opposition members of the Ukrainian parliament. Kravchenko cited a purported instruction to report on the preparations of a forum being organized by Our Ukraine leader and potential presidential candidate Viktor Yushchenko. Kravchenko said he pointed out that the preparations were being made in Kyiv, but he was told to observe them nonetheless.

The "Ukrayinska pravda" website ( posted the following passage from Kravchenko's Deutsche Welle interview on 18 February: "The criminal act lies in the fact that there is a law governing the activities of the intelligence-gathering services of Ukraine that was adopted in March 2001 and signed by President Kuchma. According to this law, I, as an intelligence officer, do not have the right to get involved in political activities in our country and, above all, to conduct surveillance of opposition parties. This is clearly stated in the law."

Kravchenko also claimed to have documentary evidence of the instructions and said he was willing to pass them on to the Ukrainian parliament's human rights committee and to the Prosecutor-General's Office.

That same day, the press section of the SBU said in a statement that Kravchenko's statements were "absurd," Interfax Ukraine reported. The SBU press release further stated, according to the news agency: "The accusations against the leadership of the SBU raised by Kravchenko are nothing less than absurd. The leadership of the SBU cannot issue any illegal orders or missions, including those of a political nature, which are prohibited by the laws of Ukraine; and, therefore, such orders have never been given."

The SBU also claimed that Kravchenko was motivated by "mercantile interests" in conjunction with his possible transfer back to Ukraine. According to the SBU, Kravchenko was ordered to return to Kyiv on official business on 11 February, when his future assignment in Germany was to be decided upon. The SBU press release claimed Kravchenko was being recalled due to his age (he was born in 1945) and "the state of his health."

Kravchenko refused to return to Kyiv, and on 16 February he was replaced by another SBU officer in Berlin. The Ukrainian Foreign Ministry declined to comment on the case, according to Interfax Ukraine on 18 February. President Kuchma -- who had arrived in Berlin for a meeting with German Chancellor Gerhard Schroeder on 19 February -- denied on 20 February that he had ever given such orders to the SBU, Interfax Ukraine reported. Some observers speculated that Kravchenko's revelations were timed to coincide with Kuchma's visit and were an attempt to embarrass the president.

On 24 February, Volodymyr Radchenko, the head of the Ukrainian National Security and Defense Council and a former head of the SBU, told Interfax Ukraine that the Kravchenko scandal was indeed related to money. Kravchenko wanted to remain in Germany for one more year in order to save enough money to finish renovating his apartment in Kyiv, Radchenko claimed. The SBU refused to allow him to do so and he began acting in a manner "unbefitting an officer of the SBU," Radchenko said.

Speaking at a news conference in Kyiv on 25 February, President Kuchma unexpectedly revealed yet another version of why Kravchenko came forward with the accusation. Kuchma told journalists that a threat on his life had been made while he was in the German spa resort of Baden-Baden in January. Kuchma claimed that Kravchenko, who at that time was in Baden-Baden and responsible for liaison with the German intelligence and security service, failed to do his job and inform those services of the threat -- leading to Kravchenko's fallout out with the SBU. RK

The second week of the landmark money-laundering trial in a U.S. court of former Ukrainian Prime Minister Pavlo Lazarenko (May 1996-July 1997) got under way in San Francisco on 22 March with testimony from a Geneva bank officer who claims Lazarenko requested an $85 million bank wire to protect the funds from President Kuchma.

Lazarenko is charged with using U.S. banks to launder at least $114 million stolen from Ukraine, but he insists the proceeds were earned legally and that he is being persecuted for having mounted a political challenge to Kuchma's presidency ahead of a 1999 election.

Andre Walkowicz was the bank officer at Credit Suisse who handled the accounts of Lazarenko and his business partner, Petro Kirichenko. In a videotaped deposition, Walkowicz claimed Lazarenko was willing to pay substantial penalties in the late summer of 1998 for early withdrawal in order to rush the $85 million to an offshore account in Guernsey in the British Channel Islands. In a private conversation the same day, Lazarenko told Walkowicz that he was taking the unusual step to protect his money from the Ukrainian president, whom he accused of seeking to punish him for his political temerity.

Walkowicz was asked whether Credit Suisse took steps to conduct due diligence on the source of the money in Lazarenko's and Kirichenko's accounts, and what level of management made the decision to deal with those two clients. Walkowicz replied that such decisions were made at the highest levels of the bank, for only they had access to reliable information about such funds. In order for Lazarenko and Kirichenko to open accounts, Walkowicz testified, they needed senior approval at Credit Suisse, which has been accused by critics of failing to safeguard sufficiently against illegal transactions.

Swiss banks have long been accused of lax efforts to combat illegal transactions. Anonymous coded or numbered accounts present major hurdles to law-enforcement agents trying to combat the laundering of ill-gotten funds, particularly funds flowing out of postcommunist Europe and Russia. The Kremlin property manager under President Boris Yeltsin in the early 1990s, Pavel Borodin, was accused of using Swiss accounts to launder some $30 million in illicit proceeds in connection with the Mabetex Kremlin-reconstruction scandal. Borodin was found guilty by a Swiss court and ordered to pay a fine of $700,000, but refused to comply with that order. Swiss police confiscated $743,000 from the Swiss account of Russian State Duma Deputy and singer Josef Kobzon late last year, insisting that those funds stemmed from illegal activities.

In his deposition, Walkowicz said another customer of his bank was Konstantyn Hryhoryshyn, a prominent Ukrainian businessman living in Russia who presented himself as a "partner of Lazarenko." Hryhoryshyn is also regarded as a business partner of Viktor Medvedchuk, the head of President Kuchma's administration, and oligarch Hryhoriy Surkis, who is also among the leaders of the Ukrainian Social Democratic Party. Hryhoryshyn was briefly held in Kyiv last year on gun- and narcotics-possession charges. Hryhoryshyn said the charges were trumped up and that the real reason for his arrest was his refusal to provide money to Medvedchuk for political campaigns. RK