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Corruption Watch: March 21, 2002


21 March 2002, Volume 2, Number 11
SPOTLIGHT
WEAPONS SALES TO IRAQ
Oleksandr Zhyr, the head of the Ukrainian parliamentary commission investigating the killing of independent journalist Heorhiy Gongadze, gave an interview to the Ukrainian Service of Radio Liberty on 13 March in which he repeated his charge (made earlier that day on the "Ukrainska Pravda" website) that Ukrainian President Leonid Kuchma personally gave his approval for weapons sales to Iraq in the summer of 2000. The conversation between Kuchma and the head of the Ukrainian arms export company, Ukrspetseksport (Ukrainian Special Exports), Valeriy Malev, was recorded by one of Kuchma's security guards, Major Mykola Melnychenko, who recently made it available to the commission. Zhyr did not quote from the recording nor did he make public what types of weapons were involved in the sale. He did say that a figure of $100 million was mentioned as the price for the weapons.

Zhyr also made the announcement that Kuchma had been informed of this on 3 March by his commission.

Leading members of the Ukrainian leadership were quick to deny that anything of the sort had taken place. Volodymyr Horbulin, the former national security adviser (although not at the time the alleged sales took place), told the BBC on 13 March that such a sale to Iraq never took place and said that Zhyr had not produced the taped recordings of this purported conversation.

On 14 March, the head of the State Committee for Export Controls of the Military, Leonid Rozen, the head of the State Service for Export Controls, Oleksandr Legenda, and the first deputy director of Ukrspetseksport, Viktor Korenkov, all told the UkrInform press agency that "Ukraine, in all its years of independence, never had any intentions to develop military-technical cooperation with Iraq." Korenkov had to make the denial on behalf of his company since the head of Ukrspetseksport, Malev, died in a car accident on 6 March.

Later, that same day, Kuchma denied Zhyr's claims, as did Prime Minister Anatoliy Kinakh. Kuchma said that these were lies concocted by "competitors in the arms sales business, in order to push Ukraine out of the market."

RFE/RL's "Crime and Corruption Watch" spoke to a reliable source who listened to the recorded conversations between Kuchma and Malev and he confirmed that the conversation did in fact take place, that details of the weapons sale to Iraq were discussed, including the price of $100 million. The recording was clear and very audible, the source said.

In a story on 14 March by RFE/RL correspondent Jefferey Donovan, Scott Ritter, a former United Nations weapons inspector in Iraq, was quoted as saying that he and his fellow inspectors found ample evidence during the 1990s that Russia, Ukraine, and Belarus violated UN sanctions by selling a wide range of conventional arms, such as the S-300 missile system, to Iraq.

Ritter's comments echoed remarks by the former U.S. Ambassador to Ukraine and now Deputy Assistant Secretary of State Steven Pifer, who said UN inspectors had discovered Belarusian artillery equipment in Iraq in 1996, when sanctions were in full force.

Ritter said he believes it is quite feasible that such activity continued after the 1998 departure of the UN inspectors. He said Iraq set up a series of front companies in Jordan, Syria, Malaysia, and other countries that acted as official buyers of the weapons, which later found their way to Iraq.

Former U.S. Ambassador to Ukraine and now Deputy Assistant Secretary of State Steven Pifer traveled to Minsk late last month to voice U.S. concerns over reports that some Belarusian arms exports violated UN sanctions and ended up in the hands of terrorists or of states suspected of supporting them, such as Iraq. Pifer made this observation in an interview this week with RFE/RL:

"In the fall, there was a group of Iraqis in Belarus being trained on how to operate the S-300 surface-to-air missile system. This is a very advanced anti-aircraft system, and there's only one reason that the Iraqis would want to have that system and people trained to operate it, [and] that is to shoot down American aircraft and British aircraft that are flying over Iraq now." RK

BELARUSIAN KGB CHIEF DENIES ARMS SALES.
Addressing a news conference on 13 March, Major General Stsyapan Sukharenka, the first deputy chief of the Belarusian KGB, denied that Belarus has traded in weapons and military equipment bypassing UN sanctions, Belapan reported. Sukharenka noted that recent accusations against Belarus of illegal arms trade were a "well-planned campaign" aimed at "breaking the Belarusian leadership's will to pursue independent foreign and home policies." He said Belarus's KGB had asked for corroboration of those accusations from "various international organizations and the media outlets that spread those rumors, and even from the CIA," adding that "nobody could say anything intelligible." Sukharenka predicted to journalists that the "next information attack against Belarus will be charging our country with drug transit into Europe," and said that preparations for this "attack" have already begun (RFE/RL Newsline, 14 March 2002).

ALBANIA
ALBANIAN OPPOSITION PARTY CHIEF DENIES MONEY-LAUNDERING ACCUSATIONS.
Albanian Socialist Party (PS) Chairman Fatos Nano was asked about accusations made in the Albanian press about him laundering $1 billion through the Albanian government, Albanian TV reported on 11 March. Nano rejected the charges and added:

"That is interesting. I have read the press, and I have been impressed by the importance it has attached to this latest political product from within us. As PS chairman for 10 years, with my political and administrative experience in connection with the constitution, the law, the government, and other representative political and assembly institutions, I have nothing to do with such figures and with abusing the law and the democratic principles of a European policy in Albania. I would also like to tell you a personal secret. The only benefit I have obtained from the political debate in the PS over the past three months, which has led to an improvement in the governance, has been 27,000 leks [about $200] a day for my regional trips." RK

'STOLEN CAR' SCAM REVIVED IN ALBANIA.
A recently revived international car scam involving luxury cars being reported stolen by their owners and then resold on the black market in Albania was the topic of a story in the "Sunday Times" (London) on 3 March.

Owners report to their insurance agents that their luxury car is missing and presumably stolen after selling it to a middleman. The owner gets reimbursed by both the insurance company and the buyer, who then sells it to black marketers in Albania. The car is sold with its original keys and registration papers, making it more difficult for law enforcement agencies to trace. The "Times" writes:

"Sporting a medallion and designer sunglasses, Tani (an Albanian black market car salesman) presented his bargain of the week: a black Mercedes S500 for 20,000 GBP ($ 28,600). "It's in perfect condition, got here three days ago, no damage whatsoever. You can have the original papers and key as well," Tani said, explaining that prices in Durres are between a quarter and a tenth of those in western Europe.

"The illegal trade in luxury foreign cars is so firmly established here that a central bank governor and a senior minister have both been left kicking their heels at border posts after police in neighboring countries realized their limousines had been reported stolen."

BULGARIA
SIX ARRESTED IN COUNTERFEIT CURRENCY OPERATION IN VARNA.
Members of the Bulgarian National Service for Combating Organized Crime (NSCOC) arrested a counterfeit currency printing operation in the Black Sea city of Varna, on 15 March according to BTA. The raid was directed by NSCOC Deputy Director Colonel Venelin Velikov and was observed in person by the Interior Ministry chief secretary, Major General Boyko Borisov.

An unnamed foreign special service helped the Bulgarian police in ending the illicit printing operation, which began a week earlier. It produced fake dollars, Deutsche marks, and euros which were smuggled across the border.

On 15 March, the operation was working on its first "order." Minutes before the law enforcers raided the premises, the consignment was ready and the customer was supposed to take away $1 million.

The criminal group had members from Varna, Plovdiv, Sofia, and Rousse. Six Bulgarians have been arrested and preliminary proceedings have been instituted against them, said Varna District Prosecutor Luchezar Dobrilov.

The fakes were perfectly executed. The dollar bills were of the 1996 series and even had a watermark. The police have yet to find out why the counterfeiters produced Deutsche marks as well and, moreover, only in large denominations of 500 and 1,000. Possibly to convert them into genuine euros, commented a source close to the investigation. RK

CZECH REPUBLIC
EXPERT CLAIMS MASARYK WAS KILLED.
Czech authorities say a new expert analysis on the mysterious death in 1948 of Czechoslovak Foreign Minister Jan Masaryk confirms that Masaryk was killed. Masaryk was the son of the first Czechoslovak president, Tomas Garrigue Masaryk. He was found dead in the courtyard of the Foreign Ministry in Prague two weeks after a communist coup.

The communist government had alleged that he had either committed suicide or accidentally fallen from his bathroom window. However, the Czech Office for the Investigation of Crimes of Communism said on 13 March that an expert on falls, Jiri Straus, has concluded that at least one person pushed Masaryk out of the window. Some analysts have speculated that Masaryk intended to commit suicide but was killed by Czechoslovak and Soviet secret police who forced their way into his flat at the Foreign Ministry.

DRUG TRAFFICKING
CZECH REPUBLIC:
German border guards seized 86 kilograms (190 pounds) of heroin from a truck on the Czech-German border near the Bavarian town of Fuerth im Wald, CTK reported on 18 March. The drugs would be worth almost 280 million crowns (9 million euros/$7.8 million) on the black market. Four men and one woman were arrested.

IRAN: Police officers in the provinces of Hormozgan, Esfahan, Kerman, Fars, and Tehran recently seized over 365 kilos of narcotics including hashish and opium, the police's Anti-Narcotics Headquarters in Tehran stated on 16 March, IRNA reported. Eight gangs were disbanded and 20 people arrested.

RUSSIA: The Russian transport police confiscated about 4 kilos of heroin in Astrakhan, ITAR-TASS reported on 11 March. The police arrested a 32-year-old Tajik citizen on the Dushanbe-Astrakhan train.

The policemen said that the detainee was a member of a criminal group specializing in "heavy" drug trafficking. A criminal case has been instituted, and an investigation is being conducted.

During the previous day, the transport police confiscated 6.64 kilos of marijuana, 212 grams of hashish, and 113 grams hashish oil.

Meanwhile, officers of the drug enforcement section of the police department in Novosibirsk Oblast detained a resident with a cache of 2.7 kilos of heroin, ITAR-TASS reported on 12 March. His accomplice, a resident of Tajikistan, managed to escape. A criminal case has been instigated.

TAJIKISTAN: Officers of the Drug Control Agency in the southern Khatlon region prevented an attempt to smuggle drugs in from Afghanistan. They seized 19.85 kilos of narcotics from drug smugglers in the Shuroobod district, Tajik Television reported on 16 March. (Compiled by RK)

RUSSIA
RUSSIA, WORLD BANK TO JOIN FORCES IN FIGHT AGAINST CORRUPTION.
The chairman of the Russian Audit Chamber, Sergei Stepashin, and World Bank in Russia Director Julian Schweitzer have agreed to cooperate in the fight against corruption, ITAR-TASS reported on 13 March.

During their meeting in Moscow on 13 March, the two sides discussed how to reform the state financial monitoring system in Russia and the World Bank's participation in this process.

Stepashin told Schweitzer about the Audit Chamber's intentions to check the use of funding under the federally targeted program.

Special attention was paid to the work of the World Bank project implementation units (PIU) in Russia. Stepashin and Schweitzer agreed that PIU activity should be determined by the Russian government. RK

BORODIN WILL NEITHER FIGHT NOR PAY.
Pavel Borodin, the former Kremlin property chief, will not fight a Swiss conviction for money laundering (see "Crime and Corruption Watch," Vol. 2 number 10), "The Moscow Times" reported on 18 March.

His lawyers say that he also will not pay a $177,000 fine levied by the Geneva prosecutor who found him guilty. If he does not pay the fine it will be deducted from the $3 million bail paid by the Russian government, deputy Geneva prosecutor Jean-Bernard Schmid said. Borodin has until 25 March to appeal the 4 March ruling by Geneva prosecutor Bernard Bertossa, who found him guilty of laundering about $30 million in kickbacks from two Swiss construction companies that had lucrative contracts to renovate the Kremlin and other government buildings in the mid-1990s. RK

NEW RULES ON RUSSIAN ARREST WARRANTS.
The Russian Constitutional Court on 14 March stripped prosecutors of one of their major rights by striking down legislation allowing suspects to be detained for more than 48 hours without a court ruling, "The Moscow Times" reported on 15 March.

Under the existing Criminal Procedural Code, warrants for holding people behind bars for more than two days can be issued by prosecutors. While this norm clearly contradicts the 1993 constitution, which says that only a court can issue such a warrant, it has been permitted for the past nine years as an interim measure because there has been no law detailing rules for court-issued warrants, "The Moscow Times" wrote.

In November 2001, the State Duma passed a new Criminal Procedural Code, which finally spelled out that arrest warrants could be issued only by the courts. The new code called for the provision to come into effect on 1 January 2004, but the court's ruling moves the date up to 1 July 2002. RK

RUSSIAN OFFICIAL ON COMBATING ECONOMIC CRIMES.
Employees at the Russian Interior Ministry's main office for combating economic crime have returned over 32 billion rubles ($1 billion) to the state budget, ITAR-TASS reported on 14 March.

The first deputy head of the directorate, Nikolai Bobkov, told journalists today that 95 percent of the economic loss sustained by the state since the beginning of this year has been reimbursed.

According to him, over 382,000 economic crimes were registered in Russia in 2001. This equals almost 13 percent of the total number of all crimes registered in the country. Bobkov also said that one in three economic crimes is very serious. Criminal proceedings were instituted against 170,000 people in 2001, which is 6 percent higher than in 2000.

"The greatest crime rate increase is found in foreign trade and the crediting and financing sphere as well as in the consumer market. The number of such crimes have grown by almost 20 percent," Bobkov stressed. "In addition, the number of bribe-taking cases is up by 12 percent." RK

RUSSIAN CITIZEN SENTENCED FOR STEALING BRIDE.
A court in Stavropol Krai's Arzgirskii District has sentenced a local resident, Murat Aliev, to four years imprisonment for an attempt to abduct a bride, ITAR-TASS reported on 16 March.

During the court proceedings, the lawyers of the accused referred to ethnographers and drew attention to the fact that the custom of stealing brides had not been considered unacceptable among the peoples living in the mountains in ancient times, as it enabled representatives from teyps (clans) isolated from the outside world by hundreds of kilometers of impassable highlands to renovate the clans by marrying those without close family ties.

However, the court did not find the advocates' arguments of appealing to antiquity persuasive. ITAR-TASS writes: "During the trial it was proved that Aliyev had kidnapped the beautiful Patimat from her native Arzgir village and hid her in neighboring Tolstovo Vasyukovskoye village against her will." RK

SLOVAKIA
LIFESTYLES OF THE SLOVAK POLITICAL ELITE.
The Movement for a Democratic Slovakia (HZDS) is a peculiar phenomenon -- although its voters are mainly recruited from the disadvantaged classes, both current and previous senior party officials enjoy displaying their newly acquired wealth, the Slovak daily "Sme" reported on 11 March.

The newspaper describes how officials of the HZDS used to live in "panelaks" (the communist-era prefab houses) and used public transport. After the HZDS gained a 100-percent majority in the Trencin region in elections last year, politicians of the HZDS became among the most affluent Slovaks. The newspaper provides the following details:

Vlastimil Vicen, who until 1994 lived in a panelak in the south Slovak town of Nove Zamky, now lives in a superb villa in the town of Stupava.

When the head of a number of investigating commissions, Dusan Macuska, entered politics he had a two-room apartment in the Central Slovak town of Lucenec. Now he owns a big house with a stable for horses.

A former waiter and later the head of the HZDS regional leadership, Vladimir Poor, privatized the Nafta Gbely national gas distributor and built a house in the west Slovak town of Trnava.

A former HZDS deputy chairman, Arpad Matejka, resides in a refurbished castle in the center of Trnava.

Former Prime Minister Meciar's finance minister, Julius Toth, lives in a mansion in Kosice; the former interior minister, Ludovit Hudek, built a two-story villa in a quiet neighborhood in Bratislava along with a swimming pool that has a wine bar around it.

Meciar's former finance minister, Miroslav Maxon, is completing the reconstruction of his medieval mansion, costing 10 million Slovak crowns ($211,000). He also owns two other houses and a barn. RK

END NOTE
DISCOVERING LAZARENKO'S FRIENDS

By Roman Kupchinsky

Defense attorneys for Pavlo Lazarenko filed a "memorandum in support of motion for discovery in support of claim alleging selective prosecution" to the United States Court for the Northern District of California on 8 March. In other words, the defense is asking the court to allow them to find evidence that their client, Lazarenko, the former Ukrainian premier, is being selectively prosecuted.

Lazarenko was prime minister from June 1996 until July 1997. He was arrested while trying to enter the United States in February 1999 and in June 2000 was charged with money laundering and mail fraud and is presently in federal detention in San Francisco awaiting trial. He is charged with having stolen millions of dollars while premier and laundering $114 million of this stolen money through various accounts in the United States. He is the first official of a foreign government to be arrested and tried on such charges in the U.S. (see "Crime and Corruption Watch" Vol. 1, nos. 6-9).

The arguments of Lazarenko's defense team for allowing them discovery are as follows:

1) The U.S. government knows that many corrupt foreign officials launder the proceeds of their corruption through the U.S. banking system.

2) The U.S. government has never before charged any such foreign official in an American court with laundering the proceeds of corruption.

3) Lazarenko, the first foreign official facing such charges, is a political rival of Ukrainian President Leonid Kuchma.

4) "The impetus for this prosecution comes from allegations made by the Kuchma regime, which itself is corrupt and dedicated to using undemocratic and repressive methods to stifle political opposition."

5) Numerous other Ukrainian officials, "including Kuchma himself and his closest associates, have committed conduct similar to that with which Lazarenko is charged but have not been prosecuted by the U.S. government."

The Lazarenko defense is asking that the U.S. government turn over all the information in its possession relating to the prosecution of their client. This includes correspondence or evidence of other communications relating to the prosecution of Lazarenko between Kuchma, members of the General Prosecutor's Office of Ukraine, and officials or representatives of the U.S. government, including the Department of State, Justice, and the Treasury or any organizations under their jurisdiction.

The defense is also asking that all correspondence between Kuchma and the General Prosecutor's Office of Ukraine regarding Lazarenko be also turned over, as well as notes and recordings, "relating to the United States government's assessment of Lazarenko, Leonid Kuchma, Oleksandr Volkov [former adviser to President Kuchma], Victor Pinchuk, [common law, son-in-law of President Kuchma], Sani Abacha [dictator of Nigeria from 1993-98], Akezhan Kazhegeldin [former prime minister of Kazakhstan], Raul Salinas [brother of the former president of Mexico, Carlos Salinas]...who are or were potential targets of prosecution for money laundering and/or fraud charges by the United States government."

To show the alleged illegal activities of its choice of Ukrainian subjects, the defense hired an expert witness, Steven L. Gore, a private investigator licensed by the state of California, to testify about the dealings of, among others, Pinchuk, Volkov, and Ihor Bakaj, the former head of the Ukrainian state natural gas trading company "Naftogas Ukrainy." (Both Volkov and Bakaj are running for office in the upcoming parliamentary elections on 31 March.) Among Gore's findings are:

"Press reports reflect that Pinchuk is actually responsible for precisely the same type of manipulation of the Ukrainian natural gas market with which Lazarenko is charged...except on a far grander scale.

"The (U.S.) Department of Commerce has reported that companies controlled by Pinchuk...dumped huge amounts of steel on the U.S. market.... Congressman Pete Visclosky, vice chair of the Congressional Steel Caucus, testified before the International Trade Commission that steel dumping by Ukraine has "crippled the domestic steel industry." Based upon my investigation and reviews of experts on the Ukrainian economy, I am informed and believe that Victor Pinchuk is the Ukrainian steel industry."

Gore cites RFE/RL reports on Bakaj's activities in the natural gas business of Ukraine. "Ihor Bakaj was forced to resign after a welter of accusations and evidence -- including evidence turned up by an RFE/RL investigation -- about his corrupt dealings."

Gore provides transcripts of a recording made in Kuchma's office by former Kuchma security guard Mykola Melnychenko of a conversation between Kuchma and Mykola Azarov, the head of the State Tax Inspection Agency of Ukraine, in which they discuss Azarov's order to Bakaj to destroy evidence of his wrongdoings.

In concluding their arguments for discovery, the defense attorneys write: "Absent discovery, the United States government will be reasonably suspected of carrying water for a dictatorial regime. As Justice Brandeis once wrote: "Sunshine is said to be the best of disinfectants."

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