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Corruption Watch: March 27, 2003

27 March 2003, Volume 3, Number 10
By Roman Kupchinsky

As the war against Saddam Hussein's Iraq moves into high gear, many law-enforcement officials in the United States are asking themselves if it will spill over into their cities, effectively making them participants. "The Washington Post" reported on 17 March that the U.S. Federal Bureau of Investigation (FBI) has plans to mobilize up to 5,000 agents to guard the United States against terrorist attacks, monitor suspected militants, and interview about 11,000 of the 50,000 Iraqis living in the United States. The Department of Homeland Security has plans to activate the "Northern Command" in the event of attack on any U.S. target, and presumably local police and other federal agencies have been alerted to such a possibility.

According to "The New York Times" of 25 March, the U.S. government resumed 24-hour air patrols over New York City after law-enforcement and intelligence agencies warned that the city is in particular danger from terrorists during the war with Iraq, senior government officials said on 24 March.

"The New York Times" reported: "'It is a reflection of the intelligence we have been receiving for some time that Al-Qaeda will try to carry out an attack at the time of a military campaign in Iraq and that Al-Qaeda continues to see New York as a prime target,' said a senior official, speaking on the condition of anonymity. 'With the war under way in Iraq, that means special danger for New York right now.'"

The problems such a massive security alert can create are immense. Airline routes and traffic can be disrupted for days, if not weeks or months. Financial markets can suffer, in addition to tourism and related businesses. Goods coming into U.S. ports of entry might have to face long delays if the government decides to conduct extensive searches. As "The Washington Post" pointed out on 24 December: "The government's new Transportation Security Agency now screens the shoes of millions of airline passengers but less than 2 percent of the 21,000 shipping containers that arrive in U.S. ports every day. Each is 40 feet [13 meters] long and easily holds the contents of a private home. United States Customs Commissioner Robert Bonner has said there is 'virtually no security for what is the primary system to transport global trade.'"

The U.S. Border Patrol is on the alert for possible terrorists, members of Al-Qaeda, or other as-yet-unknown groups coming into the country through the thousands of miles of virtually open border with Mexico and Canada, while the FBI has as its first priority the search for "sleeper cells" in the United States, conspiratorial cells waiting for an order to activate them.

As "The Washington Post" pointed out on 17 March: "At the start of a war, FBI headquarters and all 56 field offices would immediately staff 24-hour command centers in conjunction with 66 joint terrorism task forces across the country."

Appearing on U.S. television in March, Homeland Security Secretary Tom Ridge warned that "we have to prepare for the inevitability" of suicide attacks in the United States. He did not elaborate on how such preparations are proceeding.

"The Washington Post" article of 24 December cited a Bush administration official, who works full-time in counterterrorism, quoting and questioning the October testimony of Director of Central Intelligence George Tenet: "[Tenet said,] '"We were vulnerable to suicidal terrorist attacks, and we remain vulnerable to them today." It can't balance.' The official said: 'With untold billions spent -- money, personnel, and blood -- how can we claim any kind of success if we're just as vulnerable as before? It just doesn't balance.'"

Writing in "The New York Times Magazine" of 24 February, Matthew Brzezinski noted: "There is no clear consensus yet on how to go about protecting ourselves. The federal government recently concluded a 16-month risk assessment, and last month [January 2002] the new Department of Homeland Security was officially born, with an annual budget of $36 billion. Big money has already been allocated to shore up certain perceived weaknesses, including the $5.8 billion spent hiring, training and equipping federal airport screeners and the $3 billion allocated for 'bioterrorism preparedness.' All that has been well publicized. Other measures, like sophisticated radiation sensors and surveillance systems, have been installed in some cities with less fanfare. Meanwhile, the FBI is carrying out labor-intensive tasks that would have seemed a ludicrous waste of time 18 months ago, like assembling dossiers on people who take scuba-diving courses."

As the debate on national security evolved, the idea of issuing national ID cards to residents of the United States was floated. Brzezinski wrote that this idea, "once widely viewed as un-American, is gaining ground in Washington, where some are advocating standardizing driver's licenses throughout the country as a first step in that direction. Though perhaps reminiscent of Big Brother, these cards are not uncommon in the rest of the world, even in Western Europe."

Chinese authorities, according to "The New York Times Magazine," plan to introduce ID cards in Hong Kong by the end of the year. These will "contain computer chips with room to store biographical, financial and medical histories, and tamper-proof algorithms of the cardholder's thumbprint that can be verified by hand-held optical readers. Based on the $394 million Hong Kong has budgeted for smart cards for its 6.8 million residents, a similar program in the U.S. could run as high as $16 billion."

Dwight Ware Watson of Whitakers, North Carolina, a 50-year-old tobacco farmer, demonstrated the strengths and limitations of emergency preparedness in a way few would have dreamed possible. "The Washington Post" of 19 March noted that: "By driving his flag-bedecked tractor into a pond on the National Mall [in Washington, D.C.] and claiming to possess explosives, Mr. Watson managed to convert downtown Washington into a parking lot, force the closing of government buildings and city streets and create massive traffic tie-ups through at least three rush hour sequences. And federal authorities say they are ready for Al- Qaeda?" Watson, it turned out, was protesting cuts of subsidies to tobacco farmers. There were no explosives in his tractor. RK

Over 600 technical specialists and customs and law-enforcement officers gathered in Vienna, Austria, in mid-March for the first world conference on "dirty bombs." According to AP on 11 March, the co-sponsors of the conference were energy chiefs from the United States and Russia. Participants "were expected to detail progress in their joint effort in the former Soviet Union to secure loose radiation sources -- the cesium, strontium and other isotopes used in medicine and industry that could also be used to fashion a radiological dispersal device, or dirty bomb," according to AP.

Such bombs disperse radioactive materials that can cause cancers and potentially make infected areas of cities uninhabitable for decades.

According to U.S. experts, "several tens of thousands" of the most dangerous radiation sources -- used to treat cancer, find oil deposits, or disinfect food -- might be insufficiently protected. These materials can be used in a dirty bomb (see "RFE/RL Organized Crime and Corruption Watch," 20 June 2002). AP noted that the U.S. government reported last year that 1,500 radiation sources are believed to have been lost or stolen in the United States since 1996. RK

The story of the D47 highway in the Czech Republic includes an ongoing investigation of possible high-level corruption in the Czech government of former Prime Minister Milos Zeman (see "RFE/RL Organized Crime and Terrorism Watch," 6 February 2003).

To restate the facts in the case: In mid-2002, just hours before leaving office, Zeman's government signed a contract with a consortium called Housing & Construction CZ (H&C) to build an 80-kilometer stretch of highway between the Czech town of Lipnik nad Becvou and the Polish border. A major component of the H&C consortium is the Shiran Company, headed by Shimon Jakobson. The estimates to build this stretch of highway given to the Czech Transportation Ministry (there was no public tender) by H&C were deemed by critics, and even advisers, to be exceedingly excessive. The system of financing is called Build, Operate, and Transfer, or BOT -- meaning the highway will be built and paid for by H&C (50 billion crowns, or $1.68 billion). It will be operated by H&C for 25 years (and have major repairs twice) before being transferred to Czech ownership. The Czech Republic is subsequently obliged to pay a "shadow toll" that will likely add up to some 90 billion crowns between 2007 and 2032 -- with the maximum payment set at 125 billion crowns. The shadow-toll payments are based on the exchange rate, inflation, and traffic on the highway. The project came under immediate scrutiny and was put on hold as police began an investigation into reports that some of the individuals involved in the project were under investigation by Russian law enforcement on allegations of corruption.

On 8 January, "The Prague Post" reported that in an effort to boost its image after all the bad publicity it had received, H&C hired former Czech Army Chief of Staff Jiri Sedivy to serve as chairman of H&C's supervisory board. His salary was not announced, but a number of sources put it above 200,000 crowns ($7,140) per month. Sedivy enjoyed a reputation for honesty, and H&C management was quoted by "The Prague Post" as saying that he could help convince the government that H&C is indeed a credible organization.

"RFE/RL Organized Crime and Terrorism Watch" has meanwhile looked into reported links between Jakobson, the head of Shiran, which owns 5 percent of H&C CZ (the majority shareholder of H&C CZ is Housing & Construction. Another 35 percent of Housing & Construction Holding's bonds is owned by a U.S.-based company, Arison Investment Ltd., which controls the largest Israeli bank, Hapoalim.) allegedly corrupt dealings by former Russian Railways Minister Nikolai Aksenenko. Jakobson, it turns out, has in fact been involved with Aksenenko in a number of dubious deals.

One such deal was Aksenenko's awarding without a tender a $104 million contract to the Baltic Construction Company to reconstruct a profitable rail link running from Moscow to St. Petersburg. According to Russia's "Vedomosti" of 21 January 2002, the Russian Audit Chamber uncovered massive misuse of funds, including payments to nonexistent companies. The Baltic Construction Company (BCC), "Vedomosti" reported, is allied with Jakobson's Shiran Company. Aksenenko was removed from his minister's post on 3 January 2002 under the cloud of an investigation by the Russian Prosecutor-General's Office into alleged corruption and mismanagement of government funds (see "RFE/RL Newsline," 4 January 2002).

According to Czech police sources, Russian investigators suspect that Shiran Company was engaged in money laundering. They cite documents made available to them by the Russian police that suggest Russian Transportation Ministry officials improperly reduced service tariffs for Shiran, losing Russian Railways some $24 million. This money was allegedly transferred to bank accounts connected with Shiran at Austrian International Privat Kunden Bank and later laundered in the Czech Republic and Slovakia. Russian prosecutors interviewed Jakobson and his partner, Oded Harel, in Prague in connection with the purported scheme. According to those sources, the Zeman government knew of the Russian investigation but went ahead and rewarded Jacobson's company the deal in spite this of information.

The government that came to power in July ordered Czech police to conduct their own investigation into the dealings of Shiran and its president, Jakobson. That investigation was to have been completed by the end of February but is continuing. Tereza Nemcova

Russian President Vladimir Putin on 11 March issued a number of presidential decrees that he hopes will allow the government to wage a more effective battle against crime and corruption in Russia. (For a report on crime in Putin's Russia, see "RFE/RL Organized Crime and Terrorism Watch," 13 and 20 February 2003.) The major innovation was the creation of a new, independent antidrug agency that will include the staff and resources of the Tax Police and will be called the State Committee for Control of Narcotic and Psychotropic Substances. Putin chose a KGB veteran and longtime associate, Viktor Cherkesov, to head the new antidrug agency. Cherkesov, presently Putin's representative in northwest Russia, was responsible for controlling dissidents in Leningrad when Putin joined the KGB there in the 1970s.

The formation of a Russian independent antidrug agency is seen as an attempt to create something akin to the U.S. Drug Enforcement Agency (DEA). Narcotics abuse and trafficking have skyrocketed in Russia in recent years, and Putin has spoken often about the need to combat the problem. However, the placement of the 40,000-member Tax Police, a body suspected by many Russians of its own corruption, into a key position within this new agency could rapidly erode confidence in the new agency and compound the problem.

The Russian Border Service, which had once been part of the KGB and became an independent agency under former President Boris Yeltsin after the 1991 coup attempt, was also returned to the Federal Security Service (FSB), the successor to the KGB. The Federal Agency of Government Communications and Information also reverted partly to the FSB, while some of its duties will instead be absorbed by the Defense Ministry.

In reporting on this development, "The New York Times" of 12 March wrote that one effect of the changes will be to further centralize control of the government into Putin's hands. The paper quoted a member of the Russian Duma, Irina Khakamada, who observed that Putin was attempting to "rein in his unwieldy bureaucracy."

Commenting on the changes, Stratfor on 12 March speculated that Putin might be preparing himself for possible protests by the left and oligarchs ahead of unpopular market reforms that are to be introduced in the near future. Quoting unnamed Kremlin sources, "Stratfor Commentary" also claimed that Putin was making the changes in order to enhance control over national security at a time when Russia faces a fundamental choice -� to go with the Berlin-Paris alliance or with Washington in the stand-off on Iraq.

"The Moscow Times" on 12 March noted that while the so-called power ministries are controlled by chekists, largely former KGB officials from Putin's hometown of St. Petersburg, the economy is thought to be controlled by members of the "family" who rose to power during Yeltsin's presidency. "The Moscow Times" quoted NTV commentator Vladimir Kondratev, who said in an evening broadcast, "Today, the St. Petersburgers have obviously won; it remains to be seen how the family will respond."

Writing in "The Moscow Times" of 19 March, Yuliya Latynina provided the following observation: "Putin is strengthening not agencies but his friends. This explains why bribes, inaction, and corruption are not causes for dismissal in Russia." RK


By Taras Kuzio

On 6 February, Ukrainian President Leonid Kuchma issued a presidential decree titled "On Urgent Measures to Strengthen the Fight Against Organized Crime and Corruption." The official reasoning for such a decree was threefold: Organized crime and corruption continued to do damage to "citizens"; it "undermined the international prestige of Ukraine"; and there are "serious shortcomings" in law enforcement.

Why now? A reading of the decree would suggest four reasons. First, Ukraine was placed on the Financial Action Task Force (FATF) blacklist last December for preparing anti-money-laundering legislation that was only adopted after international pressure and then deemed to be inadequate. Second, Ukraine's international image has taken a nosedive since the Kolchuga scandal broke out in September, when the United States accused Ukraine of supplying military equipment to Iraq.

Third, this newfound concern for the rights of "citizens" is part of the strategy of "glasnost" in the presidential administration, begun in August, to increase the transparency of the executive and deal with public concerns (e.g., social problems, crime, corruption, etc.).

Finally, there are the approaching presidential elections in October 2004. The ruling oligarchic class in Ukraine, allied to President Kuchma, who ends his second term next year, has been totally discredited domestically as a consequence of the so-called Kuchmagate crisis that began in November. Such decrees aimed at corruption and organized crime represent an attempt to improve the public image of the executive and its allies ahead of the 2004 elections.

The first point of the decree deems the work of the Directorates on Organized Crime and Corruption (UBOZ) within the Interior Ministry (MVS) and the Ukrainian Security Service (SBU) to be "inadequate and ineffective." This was because they had "failed to ensure the execution to the fullest extent of the tasks entrusted to it." Such a conclusion is perhaps unsurprising, as critics accuse the MVS and SBU of being more involved in actually promoting organized crime and corruption than in combating them.

Arms trafficking and the money laundering of large sums from energy deals have been commonplace in Ukraine. The new decree outlines "special attention" to counteract organized crime -- which controls businesses; the fuel, energy, and agro-industrial complexes; and the financial and banking spheres. It is difficult to see how the decree can be effective when Ihor Bakai, the former head of Naftohaz, Ukraine's main gas importer, said as far back as the fall of 1998 that "all rich people in Ukraine made their money on Russian gas." The oligarchic Social Democratic Party-united (SDPUo), headed by the chief of the presidential administration, Viktor Medvedchuk, controls seven oblast electricity distributors where corruption is rife.

According to Anders Aslund, based at the Carnegie Endowment, the total "energy rents" (i.e., funds earned from insider energy trading due to links with the state) was in the range of $4 billion, or 13 percent of Ukraine's gross domestic product. These funds were only returned to the budget in 2000-01 under reformist Prime Minister Viktor Yushchenko, who used these funds to pay off wage and pension arrears.

Such corruption in the fuel-energy sector was ignored by the Interior Ministry and the SBU, and Ukraine's myriad legislative acts have never been used against any oligarch involved in corrupt energy trade. The trade was only undermined by the Yushchenko government with the help of Deputy Prime Minister Yuliya Tymoshenko. Bakai was forced to resign, and his ally, Oleksandr Volkov, who held a monopoly on oil imports that enabled him to sell the product at twice the price because of tax exemptions, went out of business. Yushchenko's government was removed by a Verkhovna Rada vote of no confidence in April 2001 that was initiated by Kuchma through his oligarchic allies.

Since then, the problem of rent seeking (i.e., close ties of oligarchic businesses to state institutions) has not disappeared. The new decree requests an analysis of why there is a "protracted delay" in acting on information about "socially dangerous criminal groups" who have close links to the state.

The Interior Ministry's UBOZ were accused in August of having organized "death squads" that murdered and robbed. These "death squads" allegedly worked closely with organized crime, and a small number of members of these "deaths squads" have been arrested since August. The new decree calls for a thorough review of personnel within the Interior Ministry and the SBU directorates devoted to combating organized crime and corruption.

The UBOZ possess squads of 50 special forces attached to each oblast center that are called Sokil (Falcon). The "death squads" comprised Sokil members and are assumed to be the same as the Orly (Eagles) that former Interior Minister Yuriy Krawchenko boasted of to Kuchma. State Prosecutor Svyatoslav Piskun admitted in February that the Sokil-Orly theory is one of three lines he is investigating in the 2000 murder of opposition journalist Heorhiy Gongadze. A document leaked to journalist Tatyana Korobova in February from Interior Ministry officers also implicates Sokil-Orly in the organization of "car accidents" of political opponents and officials who had fallen out of favor with the executive.

Will the new decree be implemented? That is a question that should be asked in Ukraine and in other Commonwealth of Independent States (CIS) countries because of the weakness of the rule of law. Legislative acts and presidential decrees are not always implemented -- or are done so in a selective manner. Elected deputies and officials appear to feel little responsibility to implement legislative acts. A large number of earlier anticorruption and organized crime legislation in Ukraine has therefore been ignored. Why should we expect this new decree to end up any different?

Another factor that should be taken into account when analyzing such legislative acts is the duplicity of CIS leaders. Often, legislative acts are undermined by the same people that are supposed to be implementing them. During the 1990s, the adoption of a large number of legislative acts and resolutions by meetings of the presidential committee on organized crime and corruption, and the National Security and Defense Council, took place at the very same time that the individuals who adopted the decrees and resolutions were themselves involved in the organized crime and corruption they were meant to be combating.

On 24 April 1998, presidential decree number 367 outlined a "Conception for Combating Corruption in 1998-2005." In 1999-2000, presidential security guard Mykola Melnychenko taped hundreds of hours of conversations in Kuchma's office detailing abuses and widespread illegalities (including corruption and links to organized crime). One of the demands in the new February decree is a report on the state of the implementation of that 1998-2005 document.

(Dr. Taras Kuzio is a resident fellow at the Center for Russian and East European Studies, University of Toronto)