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Corruption Watch: March 7, 2002

7 March 2002, Volume 2, Number 9
Meanwhile in Moscow, a person claiming to be Victor Bout -- a reputed arms broker and the owner of numerous aircraft used to smuggle arms to African states and movements on the United Nations' arms-embargo list and to the Taliban in Afghanistan -- unexpectedly came to the Moscow studios of radio station Ekho Moskvy on 28 February, where he gave a live interview. At those facilities, located a few blocks from the Kremlin, Bout denied any role in arms smuggling. He claimed that while he was indeed the owner of the planes used in these operations, he had no idea what cargo they were carrying and took no responsibility.

According to a report in "The New York Times" on 1 March, Bout told Ekho Moskvy radio that Russia was being made a scapegoat for American officials. "There is always a biased approach and double standard when they deal with Russians," he said. "For example, if there is a Russian businessman abroad, it's very easy to paste to the word 'Russian' [or] the word 'mafia.' The next word will be 'weapons,' the next something else."

A Belgian arrest warrant was issued for Bout, whose whereabouts were unknown at the time, on 25 February. As Bout was giving his interview, the spokesman for the Russian section of Interpol, Igor Tsyryulnikov, was holding a press conference nearby at which he confidently announced that Bout was not in Russia. "The Moscow Times" reported that it could not reach him for comment afterwards.

In early February, Bout's alleged partner in arms sales, Sandjivan Ruprah, an Indian national, was arrested by Belgian police. He thus joined four other men arrested in Belgium earlier on arms-trafficking charges. According to press reports, Ruprah was cooperating with the U.S. Central Intelligence Agency and British intelligence and provided them with details of Bout's arms sales to the Taliban.

In an apparent rebuke to these events, an unnamed "source" in the Russian Prosecutor-General's Office told ITAR-TASS on 1 March that the office had never received any official appeals from foreign countries for the arrest and transfer of Bout. That same day, other unnamed sources in Russian law enforcement told ITAR-TASS that Bout might have come to Moscow because "Russian law prohibits the arrest of a Russian citizen for transfer to a foreign nation."

According to two different views within Moscow's academic community, the conflicting stories from "unofficial" sources and the earlier Russian Interpol statements might reflect a conflict within the law-enforcement services on jurisdictional matters concerning Bout. According to other analysts, they are a sign that Bout has very senior friends in the Russian government who are trying to protect him, and themselves, from the embarrassing charges. These analysts point out that Bout entered Russia without any problems and probably was given high-level guarantees of safety if he returned to Russia. (Roman Kupchinsky)

The United States has placed the government of Belarus on notice that it might impose sanctions on that country for its arms sales to countries that foster terrorism. State Department spokesman Richard Boucher was quoted by Reuters on 27 February saying that the U.S. "takes reports of arms transfers to countries or groups sponsoring or fostering terrorism very seriously. We use a variety of means, including bilateral approaches to supplier countries and, where necessary, application of our sanctions laws to prevent such transfers."

On 21 February in Minsk, Deputy Assistant Secretary of State Steven Pifer warned the Belarusian leadership that the U.S. will act to stop arms sales from that country to embargoed countries. Pifer, who met with the Belarusian Defense Minister Leanid Maltsau and other officials, said the U.S. has evidence that Belarus trained Iraqi military personnel to work with S-300 missiles. The Belarusian leadership denied the charges and said Washington has no evidence to back up the charge.

Deputy State Secretary of the Union of Russia and Belarus Sergei Kalashnikov denied the U.S. accusations, according to Interfax news agency on 1 March. Kalashnikov was quoted as saying on Ekho Moskvy radio the same day: "There are no facts confirming the actual sale of arms or any other assistance to terrorists.... Thus all the hullabaloo that has been raised in America is of a purely political propagandistic nature." Kalashnikov added that during his visit to Minsk, Pifer "established only one fact:...[that] Iraqi pilots were trained in Minsk, who, by the way, did not complete their training and rather quickly left for home." (Roman Kupchinsky)

The European Union has accused two American tobacco companies of breaking the American embargo on trade with Iraq imposed in August 1990 by smuggling billions of cigarettes into the country, "The Times" reported on 28 February. The paper claimed that proceeds from the trade may have financed a terrorist group, the Kurdistan Workers' Party. Seth Moskowitz, a spokesman for RJ Reynolds (RJR), denied that his company was involved in smuggling and called the EU's accusations unsupportable and untrue. The EU claims that over the past decade, RJR and Japan Tobacco Incorporated, which acquired RJR's tobacco interests in 1999, have delivered tons of cigarettes to Iraq through intermediaries. It also says that Philip Morris took part in the illegal trade. It claims that Uday Hussein, the son of President Saddam Hussein, who controls the trade in cigarettes in Iraq, also benefited from the deal.

According to documents filed with a federal court in Brooklyn, New York, the cigarettes were dispatched from an RJR plant in Puerto Rico to European ports, then through Cyprus to Turkey, where they were carried in lorries over the border into Iraq. The EU presented an affidavit from Tugrul Ozsengul, a Turkish security consultant, who said he saw the illegal cigarette consignments on the Turkish-Iraqi border. Lawyers also provided a copy of a legal action started in Limassol, Cyprus, by Abdel Hamid Damirji, an Iranian businessman, who accused RJR and a Cypriot tobacco distributor of reneging on a deal to grant him exclusive rights to supply Iraq with cigarettes. (Roman Kupchinsky)

The U.S. ambassador to Latvia is questioning whether the Baltic country can stamp out corruption in time to join NATO in the next round of expansion, "The Washington Times" reported on 25 February. "The jury is still out on whether Latvia has the political will to see that reforms are meaningful and comprehensive," Ambassador Brian Carlson said, referring to several recently enacted legal measures designed to fight corruption. Carlson was speaking at a legal forum that included Latvian Justice Minister Ingrida Labucka. The ambassador criticized proposals for a new Anticorruption Bureau, saying they "lack teeth." He noted the recent arrests of officials suspected of corruption but expressed concern over the murder of a senior judge handling corruption cases. NATO and the European Union have signaled impatience with Latvia's effort to stop government corruption, AFP said, citing a recent EU report on Latvia. (Roman Kupchinsky)

Romania's interior minister, Ioan Rus, and Director Gabriela Konevska of the Southeastern European Cooperation Initiative (SECI) signed an agreement in Bucharest on 25 February connecting the SECI Center to the communications network of Interpol, Rompres reported on 25 February. The signature of this agreement marks the conclusion of the preparatory stage for the secure exchange of information among SECI member states. The head of Romanian Police, Florin Sandu, and the head of Hungary's National Police, Peter Orban, also signed an agreement on mutual cooperation in fighting trafficking in humans, drugs, and other transnational criminal offenses. (Roman Kupchinsky)

A senior World Bank representative in Moscow has pointed to Russia's banking system as a conduit for illegal money destined for laundering in foreign financial institutions. The charge was made during an exclusive interview with the website on 26 February by the World Bank's chief economist in Russia, Christof Ruehl. His warning was delivered on the eve of an international conference in London to discuss problems of global money laundering. It came as officials from the Russian Central Bank, the State Duma, and organized-crime fighters from Ukraine prepared to meet international police, customs, and banking authorities' delegates discussing the challenge of preventing the proceeds of illegal operations from being laundered.

Responding to the observation that the absence of a well-governed banking system in Russia allows for the transfer of illegal funds, Ruehl said, "Money laundering easily becomes a problem if the financial sector and banking regulations are weak and the authorities have difficulties in enforcing it." He added, "This is the case in Russia, with its multitude of banks and with relatively little experience in regulating modern payment systems." But Russian banks are not the only culprits, he said: "A large number of banks in this country have links with institutions abroad and are tied into the international payment and transfer systems. They can thus easily be used as entry points for illegitimate transfers."

Accounts open to scrutiny does not mean an end to banking confidentiality, he insisted. "Ideally, a convergence of laws and regulations across countries is required to protect privacy to the extent required, while at the same time, ensuring that an internationally agreed-upon amount of information disclosure takes place.

He went on: "If national laws call for registration of names of people depositing or withdrawing certain large payments in cash in a European Union country, then this national legislation will make sense only if it is extended to neighboring countries.

"A short trip over the border, which in this European Union example would not even involve crossing a marked border, solves the problem for those with criminal intent."

Commercial banks in Russia could take three steps to help control the problem, Ruehl said. Using international accounting standards would generate transparent operations allowing the banks themselves, their shareholders, and regulatory authorities to see what is going on. It would be "natural" for banks to insist that international regulations are "unified to the highest extent possible. This is in a bank's own interests in order to avoid losing customers to places with different and perhaps less stringent requirements," Ruehl added. Banks also must be willing to cooperate with the authorities, he said, coupled with "the authorities' ability to engage in effective and discrete intervention where required."

The World Bank warnings came as another warning was delivered in Moscow on 26 February by a senior executive of accountancy Ernst & Young. In a publication given to delegates of an American Chamber of Commerce conference, partner Barry Eden wrote that while Russian companies and banks cannot be accused of sponsoring terrorists, "Russia's financial system is thought to be used to launder large amounts of money generated by bribery, drug cartels, and illegal international arms trading."

"For that reason, it is now becoming essential for Russian banks and corporate treasuries to understand how international anti-money laundering regulation works, and how it is going to impact their business as early as spring 2002," Eden added.

Organizers of London's "Stop Money Laundering" conference this week have cited estimates of between $300 billion and $500 billion in proceeds from serious crime being laundered each year. (Roman Kupchinsky)

Russian special services are willing to provide assistance to Afghan law-enforcement agencies in combating illegal drugs, an official from the Russian Federal Security Service (FSB) has stated, according to Interfax press agency on 1 March. Afghanistan is still a major world drug supplier, and Russian special services are aware of this, the head of the FSB department on drug-trafficking, Sergei Fomenko, told Interfax. "Under the Taliban, the sale of drugs was an element of national policy and a budget-revenue item. Afghanistan was producing virtually nothing but drugs," he said.

When asked about the current situation in Afghanistan, Fomenko noted, according to the agency, "We can talk only about a good trend so far: Afghanistan has endured a drought in the past two years, which has significantly reduced opium poppy crops."

However, Afghanistan is not experiencing any shortage in drugs and remains the world's primary producer of opium-type drugs. "The drug stocks accumulated in Afghanistan will be enough to trade them for the next two or three years without lowering the level of supply," Fomenko added. It will be impossible to rapidly resolve the problem of drugs in Afghanistan, and "much will depend on the further scenario of the counterterrorist operation in that country," he said.

"The Afghans are an independent nation. They will not allow the establishment of control over their territory. The production of opium in areas not controlled by the international forces will not be stopped," Fomenko said, adding that Afghan farmers are oriented toward opium production as they do not have any other way to survive.

The international community could suggest subsidizing agricultural production in Afghanistan, but this is unlikely to bring about any success, Fomenko said. Agricultural producers enjoy support in a number of Latin American countries, "but, unfortunately, this does not work. It is unlikely that these measures alone could produce any result in Afghanistan, either," he said.

Concerning Russian assistance to Afghan law-enforcement structures in combating drugs, Fomenko said, "We will arrange contacts, for it is pointless to fight the drug problem without close interaction." He added: "To reduce the threat of drugs spreading from Afghanistan, it is necessary to arrange cooperation between Afghan, Central Asian, and Russian structures. What is important are joint operations, thanks to which the entire chain, from a supplier to a client, can be uncovered, and the whole channel blocked."

The United States, meanwhile, is attempting to lead an international effort to pay Afghan farmers to plow under this year's opium-poppy crop, which is expected to be harvested at the end of next month, according to the "Financial Times" on 26 February. The State Department said it is working with the international community of aid donors to Afghanistan to examine ways to pay farmers to destroy their own crops as an alternative to buying the opium poppy harvest outright. Rand Beers, assistant secretary of state for international narcotics and law enforcement, said the administration is also hoping to use local and U.S. forces to block the drug trade. But in a briefing with reporters, he conceded that Helmand, the largest opium-producing region in Afghanistan, is not yet secured by either official Afghan or U.S.-led forces.

"With respect to enforcement activities, there aren't [many], if any, in terms of the central government," he said. "There are some enforcement forces that are local." (Roman Kupchinsky)

Vladivostok administration head Yurii Kopylov has ordered that Vasilii Sherengovoy, the first deputy mayor who heads the mayor's apparatus, be temporarily relieved of his post, the Vladivostok administration's press service announced 27 February, according to RIA news agency. The decision was taken after Sherengovoy was presented with Maritime Territory tax police documents detailing results of a probe into violations in the way he drafted administration documents in November 2001. The press service said that while Kopylov was on electoral leave in November 2001 when he was running for a post in the territory's legislative council, Sherengovoy signed documents on behalf of the head of the Vladivostok administration. That despite the fact that, as acting head, he had the right to sign papers in his own right. Among the documents signed on behalf of Kopylov were some affording Sherengovoy a loan at a favorable rate. (Roman Kupchinsky)

A pre-election public-opinion poll sponsored by TACIS and the Kyiv Post Media group gauging views on corruption in Ukraine was released on 21 February. It showed that 84 percent of those polled believe that corruption is a nation-wide problem. The majority (67 percent) believe the highest levels of corruption are to be found among the political elite, while 54 percent believe it is among government officials. When asked if they believe corruption can be stopped solely through "administrative methods," 58 percent replied "no." At the same time, 44 percent did not believe corruption can be stopped in Ukraine at all. Asked whether it is justified to give a bribe "if that is what it takes to decide a problem which has great significance for society" almost 58 percent replied "no" while 17 percent said "yes." (Roman Kupchinsky)