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Corruption Watch: December 12, 2002

12 December 2002, Volume 2, Number 42
By Roman Kupchinsky
A joint report by the U.S. and U.K. governments on whether Ukrainian President Leonid Kuchma sold a set of four Kolchuga radar systems to Iraq was released on 25 November. The report, presented to Ukrainian government officials earlier in November, emerged from the findings of a 13-20 October visit by expert teams from the United States and the United Kingdom. It stressed that, despite assurances from officials in Kyiv ahead of the visit, Ukrainian authorities were less than forthcoming with information needed to draw conclusions on whether a Kolchuga was in fact sold to Baghdad. The report came under strong criticism by President Kuchma and his advisers, who called the report unfair and erroneous. The findings of the report led U.S. and NATO officials to announce that Kuchma would not be welcome at NATO's Prague summit on 21-22 November. Kuchma nonetheless came to Prague, where the overwhelming majority of heads of state assembled there gave him a chilly reception.

The Kolchuga affair began early this year after Major Mykola Melnychenko, a former member of President Kuchma's security detail, produced a recording he claimed to have made in the president's office on 10 July 2000 (see "RFE/RL Crime and Corruption Watch," 19 April 2002). On that tape, the president and Valeriy Malev, the head of Ukrainian state arms seller UkrSpetzExport, appear to discuss the possibility of covertly selling the passive radar system -- reportedly capable of detecting "stealth" aircraft -- to Iraq. During the conversation, Malev tells Kuchma: "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." Malev then adds that Leonid Derkach, head of the Ukrainian Security Service (SBU), will conduct the special operation. Kuchma replies: "Just watch that the Jordanian keeps his mouth shut. They can detect the shipment." Kuchma then states: "OK. Go ahead."

In the fall of this year, the U.S. State Department obtained from Melnychenko the original recording device that he used in the president's office and the original recording of this conversation. The items were given to the FBI and other government agencies for authentication. The results were that the recorded conversations were not edited in any way and were accurate. The recording had previously been authenticated by the Bek Tek company of Virginia, which reached the same conclusion. Despite these two independent findings, President Kuchma denied having approved the sale and claimed the recording was doctored, although he said he indeed met with Malev on that date.

Kuchma was initially informed of the existence of the recorded conversation on 3 March by a parliamentary commission. On 6 March, Malev was killed in a car crash (see "RFE/RL Crime and Corruption Watch," 21 March 2002). The circumstances of the accident remain unclear despite attempts by members of parliament to ensure a full investigation by the police.

The report of the U.S. and U.K. Experts Team makes the following points:

"The main finding of this fact-finding mission is that the Government of Ukraine (GOU) failed to provide the team with satisfactory evidence that the transfer of a Kolchuga to Iraq could not or did not take place. As a result, the issue of the transfer must remain open.

"Frequently Ukrainian officials refused point blank to answer specific questions central to the team's work, especially when questions touched on the role of senior Ukrainian figures. The team also encountered evasive responses by Ukrainian government officials to straightforward questions on the possible transfer of Kolchuga to or through third parties.

"Many documents requested were made available to the inspection team, though with varying degrees of reluctance. Following specific requests from the team leader, the Presidential Administration approved access to additional documents, but some of the most crucial documents were still withheld. For example, Ukrainian officials were unwilling to provide requested documentation on the sale of four Kolchuga stations to the People's Republic of China (PRC).

"The team was told that pending documents would be declassified and provided in the coming days. The team is still awaiting those documents.

"There has been no satisfactory in-depth investigation carried out by the Ukrainians. The Prosecutor General, the SBU and the National Security and Defense Council (NSDC) each asserted to the team that they carried out investigations and produced reports, but the team was allowed to see only edited and reduced versions of selected reports. Explanation of the degree to which information sources were checked or verified was lacking in the materials provided to the team. As a result, there remain serious concerns about the credibility and completeness of these GOU investigations."

The Experts Team concluded that in order to make a final judgment on whether the Kolchuga had in fact been transferred to Iraq, the government of Ukraine would need to:

"Make available missing documentation for Kolchuga sales to foreign countries, especially regarding the sale of four Kolchuga stations to the PRC.

"Provide information on the location of the Kolchuga stations and Ukrainian technicians in the PRC.

"Allow U.S. and U.K. experts to interview individuals that were not available during the visit to Ukraine, especially Leonid Derkach, former head of the SBU, and Yuri Orshanskyy, former Honorary Consul to Iraq."

On 28 November, a car drove into the Paradise Hotel north of Mombasa, Kenya, and exploded, killing 10 Kenyans, three Israeli tourists, and at least two suicide bombers. The attack took place at 8.00 a.m. local time. It came just minutes after unidentified attackers fired two missiles at an Israeli charter airliner as it flew out of Mombasa airport. The missiles missed their target, and the plane -- carrying 264 passengers -- later arrived safely in Israel.

Eyewitness said three men, driving a Mitsubishi Pajero, asked a local resident for directions to the Paradise Hotel. They were turned away at the hotel gate, but they returned -- smashing through barriers into the hotel lobby, where the explosion occurred.

A little-known group calling itself the Government of Universal Palestine in Exile, The Army of Palestine, claimed responsibility, although Israeli and Kenyan authorities have suggested the Al-Qaeda terror network could be behind the attacks. In a fax to news organizations in Beirut, Lebanon, the militant Palestinian group said the attacks were timed "to strike at Israeli interests" on the eve of the anniversary of the 29 November 1947 decision by the United Nations to partition Palestine and allow for the creation of a Jewish state.

On 3 December, CNN and "The Irish Times" reported that a purported Al-Qaeda statement was posted on the Internet on 2 December, taking responsibility for carrying out the attacks. "The fighters of Al-Qaeda return to the same place where the Crusader Jewish coalition was hit four years ago," the statement read, referring to the 1998 attacks on U.S. embassies in Nairobi and Dar es Salaam. The authenticity of the statement, signed by the "Political Office of Qaeda al-Jihad," could not immediately be confirmed.

"The Washington Post" on 3 December quoted an unnamed U.S. official who told the newspaper that the "Bush administration has concluded that Osama bin Laden's terror network is almost certainly responsible." The official added, "There's really no question in anybody's mind."

Media reports have identified two of the apparent attackers as Abdallah Ahmed Adallah, an Egyptian, and Fayed al-Hassan, who held a Kenyan passport. The hand-held rockets that were fired at the Israeli airliner were Soviet-designed SA-7 anti-aircraft rockets, which are widely available and cost about $1,000. From a technical point of view, it was not likely to have been an expensive venture -- in which case the money might have been seen traveling to Kenya and stopped en route. The other possibility, of course, is that the money or transaction was not caught by the elaborate controls established since the 11 September 2001 terrorist attacks in the United States.

The Kenyan attacks set off a discussion in the world press on the possible repercussions it might have and what, if any, lesson might have been learned from it. There are a number of related conclusions:

1. It was an attack on tourism as such, or, as the "Daily Telegraph" wrote on 29 November: "Western tourism is an obvious target for radicals who believe that it spearheads the advance of decadent secularism into the Islamic world. Killing holidaymakers both demonstrates to the West a protean ability to counterattack and damages the economies of countries for which tourism is a significant source of revenue."

2. "The New York Times" wrote on 29 November: "Now, whether or not Al-Qaeda was behind today's twin attacks in Kenya, Israelis have clearly fallen victim to terrorism 'with a global reach,' the scourge that President [George W.] Bush has pledged to eradicate. Further, why would the fact that Israelis shot dead in Israel were killed locally, rather than globally, make their attackers any less wicked, any less deserving of a declaration of war?"

3. "The Christian Science Monitor" of 2 December speculated that the Mombasa attack might have been an attempt to "internationalize the Israeli-Palestinian conflict." "But the Mombasa attacks, in which three Israelis died in a suicide bombing and an Israeli airliner was nearly shot down by a shoulder-fired missile, could easily have been by a group tied to Al-Qaeda. That would tie the U.S. and Israel 'wars' in many ways and also further internationalize the Israeli-Palestinian conflict."

4. The war on terrorism cannot be won by military might alone. "The Independent" of 29 November commented on the attacks as follows: "That means societies around the world need to adjust to the ubiquity of the terrorist threat. We in Britain, and especially Northern Ireland, are reasonably familiar with the concept, having endured the smaller scale bombing campaign of the IRA in the two decades before 1996. Not as familiar as the Israelis, however, who already knew that they were a nation under siege. What this means in practice is the acceptance of minor inconveniences � rather than the surrender of liberties -- and an increased emphasis on police and intelligence work."

In an opinion piece that appeared in "The Wall Street Journal Europe" of 29 November by the editor of "Strategic Survey" and senior fellow for counterterrorism at the London-based International Institute for Strategic Studies, Jonathan Stevenso: "Thanks to technology and the multinational appeal of jihadism, the training camps in Afghanistan are unnecessary. The only physical infrastructure Al-Qaeda requires are safe houses to assemble bombs and weapons caches. Otherwise, notebook computers, encryption, the Internet, multiple passports, and the ease of global transportation have enabled Al-Qaeda to become a 'virtual' entity that leverages local assets -- hence local knowledge -- to full advantage in coordinating attacks in many fields of jihad."

European countries have agreed to form a strategic partnership to fight organized crime in Southeastern Europe, which they say is threatening democracy, prosperity, and the region's long-term stability. Officials attending the conference on organized crime in Southeastern Europe on 25 November adopted a statement pledging to step up joint technical and operational efforts against illegal migration and trafficking in human beings, drugs, and weapons as well as corruption. The ministerial conference was an initiative of British Prime Minister Tony Blair and was attended by 57 delegations representing countries from the region, the European Union, the United States, Canada, and Russia as well as international organizations. British officials say it was the largest meeting ever held on the topic of organized crime in Southeastern Europe, and the biggest conference on the region overall since the Dayton peace conference in 1995. Eugen Tomiuc

Russian police confiscated more than 250,000 pirate CDs, DVDs, and videos worth millions of dollars at three military installations where pirating gangs were operating, "The Moscow Times" reported on 29 November. Federal police Colonel Sergei Ganzeev told the paper, "The military-industrial complex has found itself in an extremely difficult financial situation," To survive and preserve their intellectual potential, military-industrial businesses had to rent out their spaces." The raids, in Moscow, the Moscow region, and Yekaterinburg, all took place within a span of two weeks and were part of a government effort to reduce intellectual piracy. Police raided 10 sites in Moscow alone, the paper reported. The largest took place during the week of 18 November at Moscow's Accurate Instruments Research Institute, where police confiscated 120,000 DVDs from a company called Miriam XXI, "The Moscow Times" reported. In Yekaterinburg, 70,000 videos belonging to a company called Avtomatika were seized, while in the Moscow region police impounded 30,000 DVDs from a firm called Compositor. RK

A CD-piracy ring was uncovered by Hungarian police and two persons were arrested in connection with the investigation, Hungarian television reported on 9 December. The group had been producing CDs, DVDs and video games worth over 100 million forints ($4.28 million) and delivering them to customers by mail. More arrests are expected. RK

Police on 5 December arrested and charged Ivan Lexa, a former head of the Slovak Intelligence Service (SIS), with criminal counts that include ordering the murder of a former policeman, local and international news agencies reported the same day, citing Interior Minister Vladimir Palko. Robert Remias, who was killed by a car bomb in April 1996, was friends with a key witness who implicated the SIS in the abduction of then-President Michal Kovac's son in 1995. Palko added that prosecutors will ask that Lexa -- who spent two years as a fugitive before being arrested and extradited from South Africa in connection with other charges stemming from his 1994-98 tenure -- remain in custody, CTK reported. Speaking through his lawyer, Lubomir Hlbocan, Lexa called the charges "fabricated and politically motivated," according to TASR. Lexa faces up to 15 years in prison if convicted of instigating the murder, which Palko said was carried out to "hamper the investigation of the kidnapping," Reuters reported. Palko said additional charges have been filed against Lexa, including abuse of power, CTK added. Critics have accused Lexa of using the secret service to intimidate political opponents of then-Premier Vladimir Meciar's strong-arm regime.

Lexa had been released from custody in Bratislava on 16 August. According to the "Slovak Spectator" website on 26 August: "Lexa was released following a Supreme Court ruling that a lower court judge had been biased in taking Lexa into custody last month after he was deported to Slovakia." Lexa has been sought by Slovak authorities not only for the Kovac affair, but also for the alleged misuse of $27,000 in SIS funds. A longtime supporter of former Slovak Prime Minister Vladimir Meciar, Lexa has claimed that the charges against him are groundless and politically motivated. RK

Police in the Ukrainian capital, Kyiv, have broken up over the past month five criminal groups that they believe were sending women abroad for the sex trade, the Ukrainian Interior Ministry reported on 19 November, according to AP. The groups attracted women by placing advertisements in newspapers that offered jobs as babysitters, housemaids, and waitresses in foreign countries. Women who responded were then taken to Spain, Italy, Germany, or Turkey, where they were forced into prostitution, the Interior Ministry said. The statement did not provide details, including of how many suspects were arrested. Tens of thousands of women and children have been illegally trafficked from Ukraine, many of them subsequently coerced into the sex trade or compulsory labor, since the Soviet Union collapsed in 1991. Ukrainian police have opened more than 100 cases against suspects in 14 human-trafficking crimes this year. RK

The trial of former Ukrainian Prime Minister Pavlo Lazarenko is set to begin on 24 March in San Francisco, California. Lazarenko, presently in custody at a federal detention facility in the Bay Area, is charged with money laundering and mail fraud in the United States. He was also recently charged in Ukraine with having ordered the contract killing of Yevhen Shcherban, a member of the Ukrainian parliament, in 1997. RK


By Roman Kupchinsky

Akwesane, or "the land where the partridge drums," is a 14,000-acre parcel of land encompassing territory in New York state, Ontario, and Quebec. It is the home of the St. Regis Mohawk Indian tribe, one of the six tribes that comprise the Iroquois Nation. Across the territory of Akwesane, goods move between Canada and the United States with little in the way of controls. Members of the Mohawk tribe are allowed to purchase goods tax-free if the items are for personal consumption. The problem starts when they are bought and then resold. No one really understands who has jurisdiction over Akwesane. According to Jeffrey Robinson, author of "The Merger -- The Conglomeration of International Crime," more than $1 billion is smuggled every year through Akwesane.

When over a 15-month period in 1994 some $250 million was laundered from Akwesane through Canadian banks, The Royal Bank of Canada became suspicious and informed the Royal Canadian Mounted Police (RCMP). The investigation led to a corporate check for $676,353 deposited at RHM Bank, located on the island of Anguilla, British West Indies, into the account of a Colombian drug launderer, Luis Eduardo Velez-Arias. The check had been drawn by a company in New Jersey called Compulinx Inc. and was signed "Natalya Kaminer." The investigation showed that the executives Compulinx were Gregory and Natalya Kaminer and that they were associated with two other companies, Janus Electronics and Calimont Capital, both of which were owned or managed by Betty and Benjamin Markovitch. Betty was a Colombian whose maiden name was Rios-Valencia, while the other three were Russians. Furthermore, the investigation showed that Markovitch was in frequent contact with Anthony Gallagher, a convicted felon with reputed ties to the Genovese crime family.

The trail then led to Russia, to the Promstroj Bank, and to a little-known company called Privat Capital and run by Markovitch. Robinson's book reports that a secret U.S. Drug Enforcement Agency (DEA) briefing on Operation Dinero noted that the FBI and the Internal Revenue Service "had been investigating a sophisticated money-laundering operation in the New York area headed by two Russians who were laundering millions of dollars in the northeastern United States." The briefing went on to state that the "New York targets have extensive business dealings within Russia and one is supposedly a former KGB operative who is using his connections within Russia in the money laundering scheme."

Much of this information came to light because of Operation Dinero, a DEA operation begun in 1992 during which the DEA established RHM Bank in order to identify and apprehend money launderers. The operation was finally shut down in 1994, but a full description of this case can be found in Robinson's book.

This was in the days when the Russian mafia was just entering into the world of international drug trafficking. By 2002, the Russian mob was in Cali, Colombia, in San Francisco, and in Florida and was working with Mexican crime groups and in Europe. Ships owned and manned by Russians and Ukrainians were shipping cocaine from South America to the United States and Europe. In July 1999, the "MV Tammsarre" was seized in Spain with over 10 metric tons of cocaine on board. That shipment was linked to a Russian drug trafficker, who owned the ship, and another criminal group intended to distribute the cocaine in Europe. In January 2000, the "MV Nativa" was seized off the coast of Arica, Chile, with 8.8 metric tons of cocaine bound for Europe. The vessel had 10 Ukrainian crewmembers, some believed to be involved in the smuggling.

According to the U.S. DEA website (, a method of transporting cocaine from South America used typically by Russian organized crime is to hide it inside machine tools or automobiles. Then it is smuggled to the United States and from there to Europe and Russia. The DEA website recounts examples as evidence of the trend, including: one Russian group in California smuggling 26 kilograms of cocaine in a car shipped to Moscow via Belgium; and a different group hiding 64 kilograms of cocaine inside a machine tool that went from South America through Miami to Moscow.

The entrance of Russian organized crime into the narcotics business began during the war in Afghanistan, according to Soviet press reports at the time. Tens of thousands of Soviet soldiers were first exposed to heroin during that conflict. Being enterprising, they soon created small routes for bringing heroin back into the country, and contemporary reports described soldiers stashing heroin in the zinc-lined coffins of their fallen comrades as a means of smuggling it back into the USSR.

When the USSR disintegrated, some former KGB officers quickly switched to the drug business. In a report written for the American Foreign Policy Council by J. Michael Waller and Victor J. Yasmann, "Russia's Great Criminal Revolution: The Role of the Security Services," the authors highlight former KGB agents' links to illicit drugs. According to other former KGB agents -- the authors of the so-called "Felix Report," an account of how former KGB officials became criminals -- the former first deputy chairman of the KGB, General Filipp Bobkov, and a group of other former KGB generals joined a number of newly created banks and stock exchanges. Once they developed into what Waller and Yasmann's sources called a "Moscow narco group," they allegedly began laundering narcotics money from former KGB officers who had worked in Burma, Cambodia, Laos, and Korea in the 1970s and 1980s. At the time, operations were centered at the Russian (former U.S.) naval base at Cam Ranh Bay in Vietnam. According to Yasmann and Waller, this group first established contact with Italian, Romanian, Colombian, and Cuban trafficking networks.

The internal Russian drug trade is divided up among different ethnic groups that have established niches in order to avoid conflicts. According to the DEA, Central Asians, Afghans, and Tajiks control the smuggling of heroin from Afghanistan into Kazakhstan and on into Russia. According to the U.S. DEA, Nigerians and Chinese traffickers smuggle Southeast Asian heroin, opium, and ephedrine into Eastern Siberia. Nigerians are also active in Poland, where they are said to organize Polish "mules" to carry heroin into the United States. Russians deliver cocaine from South America to Russia. Ukrainians mostly deal in cannabis products.

Among Russian organized crime (ROC) groups, the DEA claims that the Moscow-based Solntsevo organization is the strongest and has up to 4,000 members. It operates worldwide and is known to be in contact with Colombian traffickers who supply cocaine for Russian domestic consumption and for transport to European markets.

The DEA report further states that the Tambov, Kazan, and Malyshev groups dominate ROC in St. Petersburg, with an active role played by the Chechen organization. Both the Kazan and the Chechen groups are involved in drug smuggling.

Russian crime groups initially entered the U.S. drug market by selling drug paraphernalia in the New York, Boston, and Philadelphia areas. The DEA report states that within a short time, they were significant players as suppliers of ecstasy and steroids, which they imported from Eastern Europe into the United States.

According to the Canadian government in 1997, "The smuggling of steroids into Canada remains a serious problem. Various techniques are used to move steroids into the country, although the postal system is the most popular. The importation of steroids into Canada from various points around the world, mostly Europe and former Soviet Bloc countries, does not appear to involve organized crime groups so far. According to U.S. authorities, however, Russian-based organized crime elements are major importers of steroids to the United States" (see

The U.S. DEA claims on its website that, according to Israeli police, Israeli and Russian ecstasy traffickers are typically in their mid-20s, well-educated, mobile, and multilingual. They transport the drug from Belgium and the Netherlands to the United States.

And while Russian involvement in the U.S. drug market is not yet dominant, many law-enforcement officials believe it will increase due to the global connections of these groups have and their proven ability to use violence, when the need arises, to achieve their goals.