Corruption Watch: June 20, 2002

By Roman Kupchinsky

How difficult would it be for a determined group of terrorists, or criminals intent on nuclear blackmail, to obtain the radioactive ingredient needed to construct a dirty bomb" and make the island of Manhattan uninhabitable for 40 years? The answer, unfortunately, is not so hard at all. In the "Report Card on the Department of Energy's Nonproliferation Programs with Russia" issued on 10 January 2001, the blunt facts are all there:

"The most urgent unmet national security threat to the United States today is the danger that weapons of mass destruction or weapons-usable material in Russia could be stolen and sold to terrorists or hostile nation states and used against American troops abroad or citizens at home. This threat is a clear and present danger to the international community as well as to American lives and liberties.

"Since the breakup of the Soviet Union, we have witnessed the dissolution of an empire having over 40,000 nuclear weapons, over a thousand metric tons of nuclear materials, vast quantities of chemical and biological weapons materials, and thousands of missiles. This Cold War arsenal is spread across 11 time zones and lacks the Cold War infrastructure that provided the control and financing necessary to assure that chains of command remain intact and nuclear weapons and materials remain securely beyond the reach of terrorists and weapons-proliferating states."

The Department of Energy's (DOE) "Report Card" identifies the present danger. It was soon followed by a February 2001 report to the U.S. Congress by the General Accounting Office (GAO-01-312), "Nuclear Nonproliferation -- Security of Russia's Nuclear Material Improving; Further Enhancements Needed."

The GAO report by and large agrees with the Department of Energy on the complex problems of having a U.S. government agency approaching Russia, an enemy for decades, and trying to instruct it on how to protect its own nuclear stockpiles from theft. It was clear from the very start that the United States did not have much faith in the abilities of the Russian Federal Security Service (FSB) or the country's Interior Ministry (MVD) to guard state nuclear facilities from theft. This correct assumption was bound to create enemies within the FSB and MVD. The Russians -- trained for decades to believe that the Department of Energy was merely a front for the Central Intelligence Agency, which was intent upon stealing their secrets -- tried to obstruct the project. They have been highly successful in their obstruction in the past few years.

The GAO study points out that: "Because the Russian Ministry of Atomic Energy has restricted the Department's access to some nuclear weapons laboratories and civilian sites, the Department is not installing security systems in 104 buildings containing hundreds of metric tons of material that it has identified as needing improved security systems." It goes on to say that 603 metric tons of highly enriched uranium and plutonium is at risk of being stolen. The materials at these civilian research centers, naval fuel-storage areas, and nuclear laboratories can be used in a nuclear weapon without any reprocessing. They can be carried out by "one or two people in portable containers or as components from dismantled weapons."

And while the DOE has installed security systems "not as stringent as those installed in the United States" (which is strange, given the likelihood that terrorists or criminals would attempt to buy these materials not in the U.S. but abroad -- most likely in Russia); they are "designed to reduce the risk of nuclear material theft at Russian sites." The GAO report then concludes that its investigation showed that: "Russian officials' concerns about divulging national security information continue to impede DOE's efforts to install systems for several hundred metric tons of nuclear materials at sensitive Russian sites" (p. 27).

Having installed the instruments of security at those sites to which the Russian government allowed them access, the DOE and the Russian government need to keep them operational in the long run. But how are those measures to be assessed? Is the system functioning or not? In a presumed reference to the Russian capacity for haphazard monitoring (Chornobyl being the perfect example of a huge "dirty bomb" released by faulty monitoring), the GAO report goes on to say that: "The new security systems' ability to reduce the risk of theft also depends on whether the site personnel operate the systems on a continuing basis." This means constant monitoring of alarms, sensors, cameras, and so on.

In 1997, the DOE turned to Lawrence Livermore National Laboratory to "develop measures to determine the system's effectiveness." Scientists there developed a measurement system, but it was not adopted "because it was too complex and time-intensive to implement" (GAO report, p. 16).

In an honest assessment of the situation, the GOA concurs with the DOE and comes to the conclusion that the Russian side "lack[s] the financial resources, adequately trained staff, and the knowledge of procedures to operate and maintain the systems effectively.... [M]any of the sites cannot afford the warranties, parts, or technical support necessary to ensure that the new systems are fully operational" (GAO report, p. 17).

These are the results of official U.S.-Russian efforts to prevent the theft from Russia of radioactive components that can wreak havoc (by means of "dirty" or "clean" bombs) in whatever city a terrorist group targets.

Despite these efforts, we must keep in mind that in December 1998, an employee at Russia's premier nuclear weapons laboratory in Sarov (formerly Arzamas-16) was arrested for espionage and charged with attempting to sell documents on nuclear weapons designs to agents of Iraq and Afghanistan for $3 million. The regional head of the FSB, when reporting the case, confirmed that it was not the first case of nuclear theft at Sarov and explained that such thefts were the result of the "very difficult financial position" of workers at such defense enterprises. The GAO report states that only four of the 40 buildings in the Sarov facility had completed or partially completed security systems installed.

But another factor emerges: old, discarded Soviet generators used to power lighthouses and communications equipment. Some 1,000 radiothermal generators, containing radioactive strontium-90 or plutonium-238, are now abandoned. This was first exposed by RFE/RL correspondent Jeremy Bransten on 21 March 2002 ("World: Danger Of 'Dirty Bombs' Exacerbated By Old Soviet Generators," rferl.org). In that report, he described how two cylinders containing highly radioactive strontium-90 were found by three loggers in Georgia. They turned them in to the state. "The cylinders were so radioactive, in fact, they had melted the surrounding snow." The cylinders were disposed of by a team of experts from the International Atomic Energy Agency (IAEA). These radioactive generators are efficient, compact, and can run for a number of years. Many of them have been abandoned, and few recall where they were built. Nonetheless, they remain unguarded, neglected potential components of a "dirty bomb."

What Would It Take To Destroy Manhattan?

Food irradiation is a common process all over the world. It has produced enormous success in fighting hunger and famine. It can also can serve a darker purpose: It can be a provider of a simple ingredient for widespread destruction.

In a 1999 publication by the International Consultative Group on Food Irradiation titled "Facts About Food Irradiation," the authors provide the following information on the process:

"The radionuclide used almost exclusively for the irradiation of food by gamma rays is cobalt-60. It is produced by neutron bombardment in a nuclear reactor of the metal cobalt-59, then doubly encapsulated in stainless steel 'pencils' to prevent any leakage during its use in an irradiator. Cobalt-60 has a half-life of 5.3 years, the gamma rays produced are highly penetrating and can be used to treat full boxes of fresh or frozen food. Cesium-137 is the only other gamma-emitting radionuclide suitable for industrial processing of materials. It can be obtained by reprocessing spent, or used, nuclear fuel elements and has a half-life of 30 years. However, there is no supply of commercial quantities of cesium-137. Cobalt-60 has therefore become the choice for gamma radiation source; over 80 percent of the cobalt-60 available in the world market is produced in Canada. Other producers are the Russian Federation, the People's Republic of China, India and South Africa."

Radioactive cobalt used in the process comes in cobalt "pencils" which are about one foot long and one inch in diameter. According to a study by the Federation of American Scientists presented to the Senate Foreign Relations Committee on 6 March 2002 by Henry Kelly, if one such cobalt pencil were exploded by a conventional explosive (TNT) at the lower tip of Manhattan, "No immediate evacuation would be necessary, but in this case, an area of approximately 1,000 square kilometers, extending over three states, would be contaminated."

The residents of 300 typical city blocks would have a one-in-10 risk of getting deadly cancers for 40 years. "The entire borough of Manhattan would be so contaminated that anyone living there would have a one-in-100 chance of dying from cancer caused by the residual radiation. It would be decades before the city was inhabitable again, and demolition might be necessary."

"Facts About Food Irradiation" adds that: "From 1955 to date, Canada has shipped approximately 480 million curies of cobalt-60 without any radiation hazard to the environment or release of radioactive materials. Over the same period, approximately 1 million shipments of radioisotopes for industrial, hospital, and research use were made in North America without radiation accidents."

This is indeed a fine record, but when the booklet was written in 1999, there was considerably less fear that some of the cobalt being so frequently shipped might be stolen.

The Canadian Nuclear Safety Commission (CNSC) assures the public that: "CNSC regulations prohibit the disclosure of location, routing and timing of shipments of nuclear materials, such as spent fuel. The shipment of radioactive material is also governed by Transport Canada's Transportation of Dangerous Goods Regulations, which require shippers to have emergency response plans in place."

Is this enough to prevent the theft of a single pencil of cobalt?

The Federation of American Scientists concludes: "Radiological attacks constitute a credible threat. Radioactive materials that could be used for such attacks are stored in thousands of facilities around the U.S., many of which may not be adequately protected against theft by determined terrorists. Some of this material could be easily dispersed in urban areas by using conventional explosives or by other methods."

The U.S. DOE Task Force offers a sober assessment of the present danger: "Most of the cases involving the successful seizure and recovery of stolen nuclear weapons-usable material have occurred on the western border of Russia." In their estimate, the southern border is much less secure -- representing the soft underbelly of the former USSR. The armed conflicts in these regions and the proximity to such states as Iran, Iraq, and Afghanistan makes it a no-man's land for potential nuclear smugglers. The task force was further advised that buyers from Iraq, Iran, and other countries have actively sought nuclear material from Russian sites that could be used in constructing nuclear weapons.

By Roman Kupchinsky

The trial of Slobodan Milosevic taking place at the international tribunal in The Hague has become a daily reminder of the terrible deeds which took place during his presidency. The "ethnic-cleansing operations" that unleashed such brutality against the civilian population and other atrocities now being examined at the trail are but one facet of Milosevic's evil activities. He was also head of a criminal clique that engaged in money laundering and used that money to keep his party in power and enrich those close to him. The laundered money, in effect stolen from the Federal Republic of Yugoslavia (FRY), was also used to buy weapons and equipment, bypassing international sanctions that were in place against the FRY during various periods between 1991 and 2001. The funds were then used by his special operations troops, which did the actual killings.

Information on Milosevic's money-laundering operation was compiled by an investigator from the Office of the Prosecutor of the International Criminal Tribunal for the Former Yugoslavia, Morten Torkildsen. Torkildsen's report shows that Milosevic, Mihalj Kertes, Vuk Ognjanovic, Radomir Markovic, and others created and administered a financial structure used to fund the Yugoslav Army and the Bosnian Serb Interior Ministry, and provide funds for the Socialist Party of Serbia (SPS), the State Security Branch (SDB) of the Serbian Interior Ministry, as well as for certain highly placed individuals. The scheme functioned from 1994 through 2000.

The source of the funds for this enterprise was the Federal Customs Administration (SUC). The SUC was the only institution in the FRY with the ability to accumulate large amounts of foreign and domestic currencies. On the direct orders of President Milosevic, Mihajl Kertes, the director of the SUC, provided large sums of cash directly to recipients in both Yugoslavia and the Bosnian Serb republic.

The scheme was divided into two distinct parts: a domestic component to service the FRY and Serbian institutions, and an international unit operated by the Beogradska Banka Cyprus Offshore Banking Unit (BB COBU) located in Nicosia, Cyprus.

The international unit was set up to handle payments for arms and equipment while circumventing international sanctions. An analysis by Torkildsen of banking documentation provided by officials from Austria, Cyprus, Bulgaria, Greece, and Switzerland shows that eight "front companies" were created as part of the scheme. They maintained bank accounts in Cyprus and Greece, with the Cyprus Popular Bank Ltd. and the European Popular Bank Ltd. Representatives of BB COBU managed these accounts on behalf of the front companies.

During the period of 1994-2000, large amounts of cash were deposited into the same bank accounts. From there, the money went to other entities. Five of the other entities were: Neocom Trading Ltd.; Nitranko Inc.; Microtri Handels Ltd.; Aviatrend Ltd.; and Abridge Trading Ltd. All five were identified by BB COBU officials as suppliers of arms and equipment to the Yugoslav Army and the Serbian Interior Ministry. Neocom Trading Ltd. documents reveal that this company was used to purchase helicopters and helicopter parts.

On 17, 18, 19, and 20 January, Hague investigators interviewed Mihalj Kertes, the head of the Federal Customs Administration from 4 May 1994 to 6 October 2000 -- part of the period the FRY was subject to sanctions. During those interviews, Kertes stated:

"As for the collection of foreign currency funds necessary for the survival of the state and the work of its organs, as well as for the acquisition of necessary equipment for the MUP (Interior Ministry) of Serbia and the Army of Yugoslavia: these were the two key services which Customs financed so that they could survive, especially regarding investments. I repeat, all this happened during the embargo....

"The Federal Customs Administration, as an organ of the State, also covered part of the cost for all elections held during these 6 1/2 years. I remember that at the order of the highest state leadership, FRY President S. Milosevic, I gave high-ranking party and state officials certain sums of money in cash."

Kertes recalled receiving a phone call on 4 October 2000 from Slobodan Milosevic. The president directed him to provide 2 million German marks for a "Mr. Uros," a senior police official. Kertes called Cyprus and asked Borka Vucic to raise this cash and send him 1 million German marks in exchange for 41 million dinars. That same day, Uros came to collect the funds. Kertes recalled that these funds might have been contained in bags, although such funds were usually wrapped in "packing paper."

Kertes, according to travel records, visited Cyprus on several occassions. On 25 December 1998 -- in a "Note Verbale" from the Embassy of FRY in Cyprus to the Ministry of Foreign Affairs for the Republic of Cyprus -- the FRY requested the VIP lounge at Larnaca Airport for Kertes "arriving by special flight on 27 December 1998 at 13:25." That same day, a "Drakomir Stojkovic" arrived on a private flight from Belgrade. Stojkovic filled out the following Customs Declaration: "For Browncourt Enterprises Ltd. account with Cyprus Popular Bank Ltd. I 'Drakomir' Stojkovic, resident of Yugoslavia,... declare that I have in my possession currency/bank notes and/or gold:

-DM 34 million, 838 thousand and 895 D. Marks

-3,600 Norwegian Kroner

-2,000 Portugese Escudo

-6320 Swedish Kroner

-70,920 Swiss Francs

-580 Pounds Sterling

-149,142 US dollars"

Kertes recalled the incident and told Hague investigators that a representative of the Customs Administration was on the flight with him. They were met at Larnaka Airport by officials from the Cyprus Popular Bank who took the cash.

Between 23 and 25 April 2001, senior officials from the Serbian Ministry of Interior (MUP) were interviewed by The Hague's investigators. According to the notes of those meetings, MUP officials said that in order to avoid United Nations sanctions, Yugoslav authorities set up a number of companies and bank accounts in Cyprus and Greece. The identities of those who actually controlled these companies were concealed from local authorities. This was done by placing the names of unwitting participants in the scheme on the official bank-disclosure documents. The companies traded on behalf of the Yugoslav companies.

On 20 February 2001, Vucic, a former FRY minister responsible for negotiating with international financial institutions, was interviewed by two MUP representatives. She told them that bills for 38.4 million German marks for equipment for special purposes for the Yugoslav Army and the Serbian Republic's MUP were paid through BB COVU to, among others, Neocom (5.8 million German marks) and Aviatrend (1.7 million marks). The largest amount, however, went to Abridge (23 million marks).

The company Neocom began operating in Cyprus on 9 October 1997. The beneficial owner of this business was Borislav Milosevic, Slobodan Milosevic's brother and a former FRY ambassador to Russia residing at Josifa Marinkovica 2, Belgrade. On 1 September 1998, Neocom made a request to change the nominated beneficial owner to Svetozar Milosevic: born on 11 April 1978 and holder of Yugoslav diplomatic passport number 017962, and living at the same Belgrade address as Borislav Milosevic.

Neocom opened three accounts with the Beogradska Bank Cyprus Offshore Banking Unit (a current account, a deposit account, and a letter of credit temporary account). Torkildsen's analysis of the accounts of Neocom reveal that Neocom received the following deposits:

* 10/12/97: $1 million from Antexol, Reference F1019145, F1019188-F1019189;

* 11/12/97: $1.6 million from Crandor Investments, Reference F1019145, F1019229-F1019230;

* 20/2/98: $420,000 from Browncourt, Reference F1019146; and

* 30/09/98: $339,078 from Antexol, Reference F1019146, F1019220-9221.

After analyzing the deposits, Torkildsen looked at the payments that Neocom made between December 1996 and March 1999. A total of $2.65 million was transferred from BB COBU in Cyprus to the following accounts:

* 12/01/98: $86,100 to Ukrinmash, Kiev, Reference FI01146, FI019191-9193;

* 27/01/98: $1.409 million to Ukrspetsexport, Kiev, Reference FI019146, FI019176;

* 27/01/98: $147,530 to Ukrinmash, Kiev, Reference FI019146, FI019169;

* 06/02/98: $100,000 to V.E., Reference FI019146, FI019146, FI019199-9202 [this went to account no. 47069 owned by V.E. at Diffusion Finance Bank, Nauru]; and

* 09/02/98: $415,000 to Brasseum, Reference FI019146, FI019204-9205;

* 17/02/98: $250,000 to Aviatrend Ltd., Reference FI19146, FI19208-9211;

* 24/03/98: $250,000 to Aviatrend Ltd., Reference FI019146, FI019212-9215.

The banking documents that Torkildsen reviewed disclose that on 4 December 1997, Neocom applied for two letters of credit: one for $300,000 and the other for $2.3 million. The beneficiary of both letters of credit was named as Aviatrend Ltd., Moscow, Russia. The goods were described "as per contract No. 03B/97." The applicant for these letters of credit was Borislav Milosevic. On 12 January 1998, these two letters of credit were canceled.

On 12 January 1998, Borislav Milosevic made a further request for two letters of credit. The beneficiary of one of these letters of credit was Ukrinmash and its bank, stated as the Finance and Credit Banking Corporation, Kiev, Ukraine. The amount of this facility was $147,432. The other letter of credit was for $1.409 million, the beneficiary being Ukrspetsexport and its bank, Privatbank, Kiev, Ukraine. The description of the goods in the first letter of credit is "as per contract no. 03B/97,4/23-K DD 17/11/97 and letter No. 195/98 DD 14/1/98."

The goods listed in the second letter of credit, with Ukrspetsexport, were: "2 Helicopters MI-17V serial number 3532422319632 and 35324215211424 as per contract No. 03B/97, UCE-16.1-69K/KE DD 30/10/97 and letter No. 194 DD 14/1/98." Payments on these contracts were effected on 27 January 1998.

At the time these letter of credit were being sent, the UN embargo on Yugoslavia was modified, but the ban on "helicopters" remained in place. Did Ukrspetsexport break the embargo? Who was listed on the end-user certificate for this transaction? What was Ukrinmash selling to Yugoslavia? Who was the recipient of the $100,000 sent to V.E. in Nauru? This transaction looks more like payment of a bribe to a Ukrainian official.

Aviatrend was incorporated in Gibraltar (ERN: F101-5057) in 1994. At this time, it had two shareholders: Valerii Cherny, a Russian citizen born on 23 April 1949 residing on Kominterna street, No. 4, Moscow, 129344, Russia; and Alexander Tsetsgolev. Each held 250 shares. On 16 October, an M. Stepanenko joined them as director of Aviatrend. Aviatrend also opened an account with the Commercial Bank Neftinvestbank, Sofia, Bulgaria, account number 1100137719 on 10 October 1997.

Aviatrend had previously opened an account (No. 01-562-760) at Compagnie Bancaire Geneve (CBG) on 12 March 1997.

Aviatrend was receiving a number of money transfers, and investigators were able to trace the source of the money back to such sources as FRY front companies Browncort, Antexol, Lamoral, Neocom, and Vericon. But the investigation ended there. Cherniy's Aviatrend was involved in selling arms to the former Yugoslavia, but its mechanisms were left a mystery.

In 2001, the United Nations Security Council received a report from its investigative team on arms sales to Africa in violation of the UN embargo. In the report, numerous references are made to Aviatrend and its president, Valerii Cherny.

Slobodan Milosevic denies these were illegal schemes, insisting they were aimed at ensuring his country's independence and its citizens' well-being.

But its appearances are more that of a criminal conspiracy to use money stolen from the federal treasury to buy forbidden arms in order to use them to murder the Federal Republic of Yugoslavia's own citizens.