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Corruption Watch: April 19, 2002

19 April 2002, Volume 2, Number 15
By Roman Kupchinsky

On Monday, 17 April 2000, the SOFEX-2000 arms show opened in Amman, Jordan. Among the exhibitors was a delegation from the Ukrainian state arms-export company, Ukrspetzexport, headed by its president, Valeriy Malev. The Ukrainians brought with them to show potential buyers in the Middle East, a T-80UD tank, an upgraded model of the T-72 tank, a BTR-94 armored personnel carrier, a 1L220-V fire-control radar, also known as Zoopark, and a Kolchuga passive target-detection radar.

The Kolchuga system, made by the Donetsk company Topaz, was first shown at the IDEF-99 arms fair in 1999 and many preliminary orders had been placed for it. It was upgraded in 2000, and the manufacturers claimed that there were no similar systems in the world. At Malev's insistence, several hundred thousand dollars were spent modernizing the system.

The Kolchuga now had the ability to make an accurate evaluation of land targets at a distance of 600 kilometers and air targets at a distance of 800 kilometers. What made the Kolchuga so unique was its ability to detect stealth aircraft and to prevent its own location from being discovered.

According to a report on 14 April by the Center for Public Integrity in Washington, D.C., titled "Ukrainian President Approved Illegal Transfer of Radar to Iraq," "One European intelligence expert said that if Iraq had obtained such stations, it would be 'frightening.'"

This became even more frightening when Jim Brooks, a spokesman for the Defense Intelligence Agency (DIA) of the United States, told the Center for Public Integrity, "We are quite familiar with [the Kolchuga radar]. Iraq has them."

Jordan was known by Western intelligence agencies in 2000 as a country where numerous Iraqi front companies were operating. Their mission was to buy arms for Saddam Hussein's regime. Iraqi intelligence services had set up an infiltration route via Jordan for arms to Iraq, thus bypassing the stringent international controls governing the arms embargo in effect on the country.

In a taped conversation between Ukrainian President Leonid Kuchma and Malev that took place on 10 July 2000, Malev told Kuchma that Iraq approached Ukraine through an unnamed Jordanian intermediary.

According to the transcript of the conversation, Kuchma tells Malev: "Just watch that the Jordanian keeps his mouth shut."

Earlier, UNSCOM inspectors in 1996 and 1997 discovered a plasma-spray machine, which was manufactured by the Belarusian firm Visokii Vacuum, used to protect nuclear-weapons components from corrosion. These machines were smuggled, despite UN sanctions, first to Jordan's free-trade zone in Aqaba and then overland into Iraq. Evidence of Romanian-manufactured weapons using the same route into Iraq was also discovered.

In 1997, reports began surfacing that Iraq was seeking to buy the Tamara passive radar system from the Czech Republic for $300 million (CNN, 11 November 1997). The Tamara, made by the now-defunct firm Tesla-Pardubice, possessed many of the same characteristics as the Kolchuga, but was regarded as somewhat inferior. At that time, the Czechs refused to sell the Tamara to Iraq.

By January 2002, U.S. officials were concerned that Iraq had acquired a passive radar system. The Pentagon assessed that Iraq had gained new antiaircraft capabilities, including the capability to detect and shoot down U.S. and British aircraft.

The evidence seems to indicate that during the SOFEX-2000 exhibition in Amman, Malev was approached by representatives of an Iraqi front company set up by the Iraqi intelligence service, who wanted to buy four units of the Kolchuga for $100 million. In order for the Kolchuga system to defend a territory effectively, three to four radars are needed to form one complex defense system. Malev, who understood the sensitive nature of this proposal, returned to Kyiv and on 10 July 2000 where he had a conversation with President Kuchma. The text was placed on the website of the International Consortium for Investigative Reporting on 15 April.

MALEV: There is a need for a special operation. We were approached by Iraq through our Jordanian intermediary. They want to buy four Kolchuga stations and offer $100 million right away.

KUCHMA: What is Kolchuga?

MALEV: Kolchuga is a passive radar station manufactured by Topaz. The system consists of four stations.

KUCHMA: Can you sell it without the Jordanian?

MALEV: Leonid Danilovich, I suggest that Leonid Vasilievich [Derkach, chief of the Ukrainian security service, the SBU] conduct the operation. Let's have a look at exports from our country to Iraq. Our KRAZ [Kremenchug plant] company ships its products in crates. We can use the crates marked by KRAZ. In other words, Kolchuga should be shipped to Iraq in KRAZ crates. Then, we'll send our people there with forged passports to deploy the system and launch it.

KUCHMA: Just watch that the Jordanian keeps his mouth shut.... They can detect the shipment.

MALEV: Who is going to detect it? We don't sell many [arms] there. I mean to Jordan.

KUCHMA: O.K. Go ahead.

MALEV: Thanks.

Audio-forensics expert Bruce Koenig of Virginia-based BEK TEK authenticated the tapes, finding the recordings to be unedited. "Based on the flow of speech in the designated portion, no phraseology or sentence structure was pieced together by using individual phonemes, words or short phrases," Koenig wrote in his report. BEK TEK has analyzed recordings for the U.S. Supreme Court, the United Nations, and the Department of Justice, among others. Earlier, BEK TEK analyzed recordings made in President Kuchma's office regarding the disappearance of journalist Heorhiy Gongadze and found that they were also authentic and unedited.

The clear intent to sell weapons to Iraq by Ukrainian President Kuchma was in open violation of international agreements he had signed. He assigned the details of the shipment to Iraq to Leonid Derkach, the head of the security service, the SBU, who was more than willing to comply with this order. How the shipment actually got to Iraq, if it in fact did, is unknown.

For more information on this case, visit the website of the Ukrainian Service of Radio Free Europe/Radio Liberty at

Italian Direzione Anti-Mafia (DIA) magistrate, Cataldo Motta, told the BBC on 3 August 2000 that, "Albanian gangsters are taking control of organized crime on both sides of the Adriatic." At that time, the most lucrative business for Albanian crime gangs was human trafficking. According to "Jane's International Police Issues" of 3 December 1998, 14,000 Albanian women were working as prostitutes in Europe. Of those, 8,000 were in Italy and 5,000 in Germany. It was estimated at the time that 14 percent of them were underage.

This was five years ago. By 2002, the situation had grown much worse. Since 1998, Albanian-run heroin-processing factories in Macedonia, which in 1998 reportedly had two facilities, have multiplied. The principal reason for this growth is the inability of authorities in Afghanistan to stop farmers from growing opium because of the chaos caused by the war in that country. This has allowed traffickers to smuggle many more tons of heroin and opium to the West. Most of this will go via Iran, despite the Iranian efforts to interdict this traffic, from there to Turkey, and then to Albania and Western Europe, mostly via Italy.

Dr. Mark Galeotti, writing in Jane's in 1998, pointed out three dangerous trends taking place in the Albanian mafia: "Organization.... Albanian organized crime gangs are developing more sophisticated organizations. Two: Internationalization, Albanian crime groups are building networks throughout Europe. Third: diversification, Albanian organized crime is moving into new fields, from money laundering to fraudulent pyramid investment schemes."

An example of this third point was recently highlighted in a report by the Institute for War and Peace Reporting on 4 April:

"Kosovo's international police last week announced they had made several arrests for lottery fraud. This highlights the West's failure to introduce laws against money laundering and other illegal financial activity across the region.

"Many people in the impoverished UN administered territory were lured into buying lottery tickets from a raft of shady, private lottery firms after watching TV adverts that featured beneficiaries of dramatic windfalls."

The latest attempt to stop violent crime and corruption in Albania, the Finnish-financed "Investments in Exchange for Weapons" program, is to begin in "the next few weeks," the Albanian news agency ATA reported on 3 April." The money earned from the voluntary exchange of weapons in the town of Viora will be invested into education, health care, and the town's infrastructure. Thus far, according to ATA, 382 automatic weapons, 215,000 bullets, and 964 grenades have been turned in. Some estimates claim that as many as 1 million illegal automatic weapons are on the black market in Kosovo, which has a population of 3 million people, of which 90 percent is ethnic Albanian. RK

The division of Russia's Prosecutor-General's Office in the Central Federal District announced that it is reopening its investigation of alleged fraud during the 1997 privatization of 40 percent of the shares of Tyumen Oil Company controlled by the financial-industrial group Alfa, "Vremya novostei" reported on 3 April. Russia's Interior Ministry opened the initial investigation, which focused on several high-ranking Russian officials, including former Energy and Fuel Minister Yurii Shafranik, in 2000, but it was closed shortly thereafter due to political pressure from "above," the newspaper reported.

Tyumen Oil Company has also been accused of having suspect financial dealings with the Sintez Corporation, whose president, Leonid Lebedev, is facing an indictment by a court in Turin, Italy, for smuggling arms into Croatia in 1999. VY/RK

On 5 March 2002, the Anti-Mafia coalition in the Ukrainian parliament (which consists of a grand total of three members out of 450 parliamentarians) sent an official letter to the Prosecutor-General's Office, addressed to First Deputy Prosecutor-General Mykola Harnyk, asking that his office reply to charges that Prosecutor-General Mykola Potebenko received a bribe of more than $100,000.

The letter was reprinted on the website of "Criminal Ukraine," an Internet investigative journal. A member of the Anti-Mafia coalition, Hryhoriy Omelchenko, confirmed the accuracy and contents of the letter to Crime and Corruption Watch.

The letter stated that on 16 June 1999 the Ukrainian parliament created an ad hoc commission to investigate the creation of offshore accounts by officials of the Ukrainian government. The commission was headed by Omelchenko, a former KGB officer. On 24 August 1999, Omelchenko and his deputy, Anatoliy Yermak, testified in parliament, stating that:

"According to the press secretary of the Brussels Court of Belgium, the court investigator, Collet Calevart, has initiated charges against the former adviser to Ukrainian President [Leonid] Kuchma, Volkov, Oleksander, for having opened bank accounts for himself and his partners in Belgium, during the period of 1994-1997."

According to Belgian officials, these accounts were used to launder millions of dollars of ill-gotten funds for the benefit of Volkov and his co-conspirators. The Belgian officials supplied the account numbers and the dates of wire transfers made by Volkov and his co-conspirators and requested assistance from the Ukrainian Prosecutor-General's Office for help in the investigation. Prosecutor-General Potebenko refused.

The Anti-Mafia inquiry into the Prosecutor-General's Office showed the evidence provided by the Belgian investigators, including the various shell companies used by Volkov and his associates to launder money from suspected illegal operations. The Prosecutor-General's Office replied to this inquiry on 4 October 1999, stating, "There is no evidence for initiating a criminal case against Volkov, O.M."

Yet, on 1 October 1999, a wire transfer from a "charity fund" that Volkov and his co-conspirators had created, called Social Protection, which the Anti-Mafia group called a "fund to provide funds to have Kuchma re-elected in 1999," transferred a total of $100,000 to the Prosecutor-General's Office for "a bus." The head of Social Protection was Yuriy Nazarenko, Volkov's partner in most of his dealings in Belgium and other countries.

The parliamentary commission insists that this transfer was a bribe by Volkov to Potebenko to drop charges against him.

Transcripts of conversations with Volkov in President Kuchma's office, secretly recorded by Kuchma's former bodyguard Mykola Melnychenko, showed that Volkov had indeed pleaded with Kuchma to have the investigation stopped. Then Volkov agreed to provide more money to the Kuchma re-election campaign of 1999. Kuchma is heard on the recordings telling Potebenko to stop the investigation into Volkov's activities. Then the $100,000 transfer took place and the investigation died.

Volkov was re-elected to the Ukrainian parliament on 31 March 2002. He declared that he would be part of the pro-presidential majority of Volodymyr Lytvyn (also elected to parliament on 31 March), the former head of Kuchma's administration who was heard on tape as the chief instigator of the disappearance of Heorhiy Gongadze, an investigative journalist who often exposed Volkov's suspected criminal dealings. Gongadze's decapitated body was found in November 2000 buried outside Kyiv.

Potebenko, who, according to Gongadze's widow Myroslava, has continually stonewalled the investigation into her husband's murder, was elected to parliament on the Communist Party ticket, thus insuring for himself immunity from prosecution.

The ending to this story is that the letter of 5 March from the Anti-Mafia group to the Prosecutor-General's Office was first published in the newspaper "Svoboda," a small opposition paper. The editor, Oleh Lyashko, was called to the militia on 23 March, but refused to go. Then, the next day, the Ukrainian militia destroyed the entire print run of the paper (107,000 copies) after they intercepted the truck making the delivery of that edition. A second print run was also destroyed by the militia a few days later. At the time this issue of Crime and Corruption was going to press, Lyashko was under arrest in the Ukrainian city of Cherkassy. RK

A team of four special agents from the Federal Bureau of Investigation arrived in Kyiv in April to help in the investigation of the killing of Heorhiy Gongadze in September 2000. At a meeting with the Prosecutor-General's Office, Deputy Prosecutor-General Oleksiy Bahanets informed the agents that they will not be given access to files or material evidence in the case, UNIAN reported on 12 April. On 16 April, the U.S. Embassy in Kyiv issued a press release in which it stated:

"The Government of Ukraine invited a team of FBI experts in homicide investigations to consult with Ukrainian investigators in the Heorhiy Gongadze case.

"The team met with investigators in the Office of the Procurator General, the Ministry of Internal Affairs, and the Security Service of Ukraine.

"The objective of the FBI team was to exchange ideas on methodology and strategies related to the Gongadze investigation. The team was not here to conduct its own investigation. Unfortunately, Ukrainian law enforcement officials asserted that Ukrainian law prohibits sharing any information that is not in the public domain, and said they were unable to discuss any aspects of the case, share evidence, or conduct a joint site inspection. Because of this, the FBI team could not provide suggestions that might help Ukrainian law enforcement authorities advance the investigation of the murder of Heorhiy Gongadze."

They were also told that they can, if they wish, interview Yuriy Kravchenko, former head of the Ukraine's Interior Ministry, and Leonid Derkach, head of the Ukrainian security service, who are both forbidden by law from disclosing anything they know about the case.

"Ukraine gives corruption a bad name." -- U.S. philanthropist George Soros ("The New Republic," 15 April 2002).


By Roman Kupchinsky

In the former Soviet Union, as in most of the Warsaw Pact countries, there were two types of police informers: the "seksot." or "sekretniy sotrudnik" (undercover informant), and the "stukach," literally, "one who knocks," or merely an informer. Their status under Soviet law was never very clear. Law-enforcement officers, primarily the KGB, were allowed to place their undercover agents in organizations and use their reports, without any challenges from the defense, in court trials. The stukach, however, often remained anonymous. He or she could be a neighbor or a relative who sent in an unsigned complaint of alleged illegal activity to the state organs or law-enforcement agencies. The most prominent stukach was the "legendary" Pavlik Morozov, who allegedly informed on his father for stealing grain during collectivization in 1933 in order to feed his family. The NKVD shot the father and Morozov became a Stalinist folk hero.

With the collapse of communism in Eastern Europe and the USSR, the question of informing on alleged misdeeds by officials has become a highly emotional and widely misunderstood issue.

The most prominent cases include:

Aleksandr Nikitin, who sent reports on the illegal disposal of nuclear waste by the Russian Navy to the Norwegian environmental group, the Bellona Foundation, which then published the information. He was arrested, charged, and tried, but was finally acquitted in 2000 after four years of repeated trials for "treason."

Mykola Melnychenko, the former bodyguard of Ukrainian President Leonid Kuchma, who secretly recorded conversations in the president's office in which Kuchma is heard ordering numerous illegal acts. Melnychenko left Ukraine and was granted political-refugee status in the United States in April 2001.

Ukrainian law-enforcement agencies have issued a standing arrest warrant for him on charges of "divulging state secrets."

According to all available evidence in the Nikitin case, the defense has shown that Nikitin gave his Norwegian collaborators only open documents that were not classified and had all been published before he passed them on. In the Melnychenko case, no recordings have been made public that deal with Ukrainian national security. All released transcripts or reproductions of recordings touch only upon high-level corruption and incriminating discussions involving the intent to have journalist Heorhiy Gongadze silenced.

By accepted Western standards, Nikitin and Melnychenko would be legally qualified as whistle-blowers and given the appropriate protection.

As Elaine Kaplan of the U.S. Office of Special Counsel (OSC) wrote in the fall/winter 2001 Journal of Public Inquiry: "In the United States, statutory protection for whistleblowers has existed for at least 20 years. Further, constitutional guarantees of free speech have long been interpreted to protect public employees who speak out on matters of public concern -- including corruption and malfeasance." Kaplan continues: "As the international community is increasingly recognizing, employees (especially public employees) are an invaluable source of information about official corruption. Anti-corruption efforts are hampered when employees are reluctant to be become 'whistleblowers.'"

The OSC was established in 1979 in the wake of the Watergate scandal for the purpose of protecting whistle-blowers employed by the United States federal government. The special counsel is appointed by the president, with the approval of the U.S. Senate, but does not serve the president. He or she has a fixed term of five years and can only be removed for misconduct.

On 2 February 1988, the USSR Supreme Soviet banned security agencies from initiating investigations on the basis of anonymous accusations, or "anonimki." In 2000, the Federal Security Service (FSB) let it be known that it will once again turn to anonymous accusations of Russian citizens as the basis for possible investigations of criminal activities." In 1999, the FSB received a total of 65,000 such anonymous tips and in 2000 the number increased slightly to 66,000.

Lacking legal protection from the state, many anonymous accusations in Russia are a form of legitimate whistle-blowing. Others, however, might not be.

As Catherine Cosman points out in RFE/RL's "(Un)civil Societies" on 21 February 2001: "If someone took a fancy to someone else's apartment, he or she could send off an anonymous denunciation to the state authorities. The hapless inhabitant of the wished-for apartment might then be hauled off by the security apparat and the denouncer rewarded."

Are anonymous denunciations allowed in the United States? Fear of official persecution, the loss of a job or demotion have always been taken into consideration by many potential whistle-blowers before making any type of denunciation in the U.S. The OCS was formed also to protect the identity of whistle-blowers from retaliation. Many anonymous whistle-blowers in the United States have preferred to take their stories to the media, thus finding some measure of protection for themselves as "protected sources." (See the case of Daniel Ellsburg and the Pentagon Papers below.)

A major problem in Russia and the West concerns the legitimate protection of national security. Many Russian organizations have internal regulations that label a certain document "classified." Often these regulations are promulgated more on traditional paranoia than on common sense. In a far-reaching decision, the Russian Supreme Court in February 2002 overturned two Defense Ministry orders that gave the military wide latitude to prosecute people for treason. The Supreme Court banned a Defense Ministry order forbidding officers with access to classified information from having contacts with foreigners and threw out an order known as "Order Number 55" that allowed the ministry to keep a secret list of what constituted classified information.

In those cases in the United States where whistle-blowers are dealing with classified information, they can obtain protection by making the disclosure either to the OSC or to any federal agency's Office of Inspector-General. In England, the Official Secrets Act (OSA) does not recognize the rights of whistle-blowers. Changing this is presently being debated in the court system and in the press. The OSA makes it a crime for current and former members of the security services to reveal any security-related information, even if such information is not damaging to national security.

The most famous case of exposing classified information in the United States was the case of the Pentagon Papers. A Pentagon consultant, Dr. Daniel Ellsburg, a supporter-turned-opponent of the war in Vietnam, anonymously sent to "The New York Times" a classified study and documents about the Vietnam War commissioned by the Pentagon. The first installment was published in "The New York Times" on 13 June 1971. President Richard Nixon intervened and ordered the Department of Justice to issue a temporary restraining order to stop publication. On the basis of the doctrine of "prior restraint," Attorney-General John W. Mitchell abided by the president's request. "The New York Times" then, however, passed the Pentagon Papers to "The Washington Post," which continued their publication. The case of the Pentagon Papers eventually went to the Supreme Court, which, on 30 June 1971, ruled nine to zero in favor of "The New York Times," deciding that the doctrine of prior restraint was unconstitutional. The Constitution, the justices asserted, has a "heavy presumption," in favor of press freedom.

The delicate balance between the legitimate need for secrecy, freedom of speech, and whistle-blowing has been an issue for civil society for many decades. When does the reasonable belief of a whistle-blower in his or her accuracy overstep the bounds of national security in a democratic society? And when does it stop being freedom of speech and begin bordering on treason?