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Corruption Watch: December 6, 2001


6 December 2001, Volume 1, Number 6
SPOTLIGHT
THE COMING HEROIN ONSLAUGHT.
The poppy fields of Afghanistan are capable of supplying more than 70 percent of the world's heroin production. This was demonstrated when the Northern Alliance controlled the country and, to a lesser extent, when the Taliban controlled it. In 1999 Afghanistan produced a record 1 million pounds of opium. After the Taliban cracked down on such production, it reportedly fell to a mere 40,600 pounds in 2001. However, thousands of pounds of heroin had been stored in warehouses. As a result, it is estimated that some 2,800 tons of opium is available and already beginning to hit the streets of Western Europe. After processing, this opium can be converted into 280 tons of heroin with a street value of between $40 billion and $80 billion.

Taking into account that the average annual income in Afghanistan is $480, it is evident that efforts to stop or significantly lower production of opium will be difficult. The Taliban claimed to have stopped the cultivation of opium poppies, but recent reports from the region indicate that this was a haphazard and less-than-genuine effort. Numerous farmers have testified that Taliban officials were being bribed by farmers to allow them to continue growing opium poppy.

Opium and heroin processed in Afghanistan reaches the West by two major routes: the Northern route, through Central Asia to Russia and Ukraine, then through Poland to Western Europe; and the Balkan route, via Turkey to Bulgaria, Albania, and Italy, then north to Austria and the rest of Europe. The Balkan route is largely controlled by Albanian organized crime gangs (see "Crime, Corruption, and Terrorism Watch," vol. 1, no. 5), while Russian authorities have stated that there are 2.5 million drug traffickers in their country. A substantial amount of drugs, mostly heroin, from Afghanistan has been confiscated from traffickers recently in Iran, Tajikistan, and Bulgaria (see below). But most law-enforcement officials claim that these are insignificant amounts compared to the volume presently in the pipeline.

If the United States cannot convince the Northern Alliance to force Afghan farmers to stop opium production, then law-enforcement agencies in the bordering countries will be hard-pressed to stop such trafficking through their territory. The amount of money involved is too great and the poverty in the region too widespread to interdict this flow by traditional means.

BULGARIA
HEROIN SEIZED AT TURKISH BORDER.
More than two kilograms of heroin was confiscated by customs officials at the Kapitan Andreevo border checkpoint. The narcotics were discovered in a private automobile traveling from Turkey to Bulgaria with Bulgarian license plates Bulgarian Radio reported on 26 November. Seven packages with white powder were concealed in the spare tire. Tests showed the substance to be heroin. The 26-year-old Bulgarian citizen behind the wheel was arrested.

IRAN
NARCOTICS SEIZED IN SOUTHERN, NORTHEASTERN IRAN.
Police in the southern Iranian province of Sistan-Baluchestan confiscated 1,086 kilograms of assorted drugs during the week of 21 November, according state-run news agency INRA. Among the confiscated drugs were 610 kilograms of hashish hidden in a truck and 434 kilograms of opium. A total of 18 people were arrested in the operation. Meanwhile, in northeast Iran's Khorsan province, police seized 115 kilograms of opium on a bus traveling from Zabol, in southern Iran, to Gorgan in the Golestan province.

KAZAKHSTAN
LARGE HEROIN HAUL UNEARTHED IN CONSIGNMENT OF KAZAKH TOMATOES.
Russian customs officials in Kuludinsk (Altai) discovered 20 kilograms of heroin hidden in a shipment of tomatoes from Kazakhstan on 14 November, Interfax-Kazakhstan reported on 23 November. The driver had presented a customs clearance certificate for the tomatoes, but the officials discovered other vegetables and placed the shipment in a warehouse. There they discovered five packets of heroin hidden among the tomatoes.

LATVIA
LATVIA'S ANTICORRUPTION EFFORT GETS HIGH MARKS.
Transparency International-Latvia's chairwoman, Inese Voika, said at a press conference in Riga on 26 November that the organization's report on world corruption considers the situation in Latvia to be positive, LETA reported.

The report said the fight against corruption in the Baltic states has reached the same level as in the poorest EU member states and that the EU is consistently applying pressure to combat corruption. But Voika warned that, while Latvia has passed the necessary laws to fight corruption, such legislation is not being implemented effectively. She noted that the report devotes considerable attention to the financing of political parties and calls for legislation requiring those parties to provide more information about the sources and size of donations they receive. ("RFE/RL Newsline," 27 November 2001)

NEW BRIBERY SCANDAL.
Tatiana Durova, deputy chief of the economic police of Latvia, was accused on 19 November of accepting a 10,000 lat ($16,100) bribe in May according to the Baltic Times. Durova is the most senior officer accused of such a crime since Latvia regained independence a decade ago, according to Krists Leiskalns, a spokesman for the state police.

Leiskalns charged that the bribe was offered to help close a criminal case relating to value-added tax (VAT) refunds in the postal sector that amounted to about 86,000 lats. An economic police inspector, a former Interior Ministry employee and a fourth person were also detained. All four have since been released from custody but are still under investigation. The economic police are a division of the state police, both of which report to the Interior Ministry.

On 20 November another high-ranking official was detained for bribery, and two other officials were accused of smuggling. Security police said Anda Busmane, head of the Environmental State Inspectorate, took a 1,200 lat bribe for completing routine duties although she was originally seeking 4,100 lats.

Fourteen Interior Ministry employees have so far been detained for bribery, along with 12 police officers and two border guards. Twelve of the detained have had charges filed against them.

ROMANIA
ROMANIAN SENATE CHAIRMAN DISMISSES ALLEGATIONS OF MISCONDUCT.
Senate Chairman and former Premier (1992-96) Nicolae Vacaroiu on 26 November dismissed as inaccurate a report in the daily "Romania Libera" accusing him of accepting a bribe. The report alleges that he received $708,000 from businessman Sorin Ovidiu Vantu for services provided to obtain a license for Vantu's Bank of Investment and Development, RFE/RL's Bucharest bureau reported. Vacaroiu admitted that he signed a contract with Vantu to facilitate the bank's launch, but he added that at his own request the contract was canceled. "I did not receive a cent," he said. He said he canceled the contract after its details were leaked to the press but added that that he has no documentation to prove the contract was canceled. He said he received "an excellent salary" as chairman of the board of the bank for over one year prior to the 2000 elections, adding that even that salary was "below my real value." Vantu is alleged in Romanian media reports to have masterminded and benefited from the collapse of the national investment fund. ("RFE/RL Newsline," 27 November, 2001)

RUSSIA
RUSSIAN QUARTERMASTER MADE MILLIONS SELLING STOLEN WEAPONS.
The head of a military warehouse was arrested in the Nizhnii Novgorod region for selling dozens of automatic weapons and pistols, thousands of rounds of ammunition, bayonets, field binoculars, night-vision instruments, gun sights, and mobile electric generators, Russian NTV reported on 23 November. Yevgenii Tarasenko, the head of the warehouse of one of the artillery units of Mulino garrison, reportedly sold over 1 million rubles' worth of weapons.

About 27,000 firearms are known to have been stolen from military units in Russia. In 2001 the number of crimes recorded in Russia involving illegal trading in weapons was 53,900.

SOME 2.5 MILLION RUSSIANS REPORTEDLY INVOLVED IN DRUG TRAFFICKING.
President Vladimir Putin and the Russian Security Council regard drug addiction as a threat to Russia's national security. At a press conference in Khabarovsk, the presidential representative to the Far Eastern federal district, Konstantin Pulikovskii, said Russia has become a target for international drug lords. The rate of drug addiction in Russia has gone up tenfold since 1990 to include 950,000 addicts. No less than 2.5 million Russians are reportedly involved in drug trafficking. ITAR-TASS reported that roughly 25,000 drug addicts have been registered in the Far Eastern federal district. More than 5,000 drug-related crimes have been reported there so far in 2001.

RUSSIAN BORDER GUARDS REPORT HEROIN SEIZURES ON TAJIK-AFGHAN BORDER.
Russian border guards claim to have seized more than 700 kilograms of drugs, mainly heroin, at the Panj section of the Tajik-Afghan border this year. More than 20 drug traffickers have been killed in clashes on the border, the head of Panj border guard troops, Oleg Tarasov, told an independent group of experts from a UN project to combat illegal drug traffic in Tajikistan.

According to ITAR-TASS on 24 November, Tarasov noted that the drug inflow had decreased since the beginning of the antiterrorist operation in Afghanistan. However, several tons of heroin have accumulated near the border in Afghanistan, and drug traffickers may attempt to smuggle it into Tajikistan.

KILLING OF PORT DIRECTOR IN RUSSIAN FAR EAST LINKED TO ORGANIZED CRIME.
The chief of the Nakhodka eastern seaport, Leonid Bochkov, died as a result of gunshot wounds in a hospital four hours after being shot. The incident occurred on the evening of 26 November, as Bochkov was leaving the administrative office. He was killed by two bullets to the head. According to ITAR-TASS, the incident was filmed on two security cameras established near the seaport administrative department.

Nakhodka seaport is Russia's biggest harbor on the Pacific coast, and its freight turnover in 2000 reached 13 million tons. In 2001, a controlling stake in the seaport was bought by the Severostal joint-stock company from foreign owners.

Nakhodka authorities believe Bochkov was the victim of a rivalry between criminal structures. Bochkov's was the second murder recently involving a senior figure of one of the Russian Far East's largest enterprises. Valerii Maslakov, the head of a defense enterprise which scraps decommissioned nuclear submarines and processes nuclear waste, was murdered in the town of Bolshoi Kamen in mid-September.

CENTRAL BANK SAID TO FALL PREY TO PROFIT MOTIVE.
According to a 70-page study released by the Moscow Carnegie Center on 27 November: "The [Russian] Central Bank as an independent, absolutely opaque and uncontrolled administrative-financial system did not arise by chance or overnight." One of the authors of the study, Dmitrii Vasilyev, told "Moscow News" on 28 November that one of the major "corruption-causing" problems with the bank is the fact that it regulates the entire banking industry of Russia, while itself being a profit-seeking entity.

"The value of this system for society is doubtful," Vasilyev said, "but the value for the Central Bank and its managers is obvious, as it allows them to get involved in any economic processes in the country."

Vasilyev said the report is just the first stage of a year-long project started in July to examine several government agencies, with the next target likely to be the State Customs Committee.

CRIMINAL, POLITICAL CIRCLES MERGE IN RUSSIAN FAR EAST.
Fifty-nine of those who have registered as candidates in the upcoming elections to the local legislative bodies of Khabarovsk, the Maritime Territories, and the Kamchatka region allegedly enjoy close ties to the criminal world. "According to thoroughly checked information, cases of infiltration of the political structures by criminal groups have been observed in almost all the constituent entities of the federation within Far Eastern federal district," Aleksandr Drozdov, the deputy presidential envoy to the Far Eastern federal district, told RIA News Agency on 30 November. "We must not allow a single representative of the criminal world to enter the political structures."

PROSECUTORS ACCUSED OF INTERFERING IN REGIONAL ELECTIONS.
In an interview with Ekho Moskvy radio on 29 November, former Justice Minister Valentin Kovalev charged that there are "clear signs of interference by the Prosecutor-General's Office in the election battles in regions." He added, "It is completely obvious that, in Yakutia, prosecutors are carrying out various activities that do not fall under general judicial procedure." Kovalev accused the Prosecutor-General's Office of acting in support of Deputy Prosecutor-General Vasilii Kolmogorov, who is a candidate in the race. Meanwhile, the Supreme Court of the Republic of Sakha (Yakutia) on 29 November canceled the registration of three candidates in the 23 December presidential elections, Interfax-Eurasia reported. Local Interior Ministry head Semen Nazarov, along with businessmen Mikhail Sannikov and Afanasii Maksimov, lost their right to participate in the elections. Diamond company Alrosa's head, Vyacheslav Shtryov, was ejected from the race earlier. ("RFE/RL Newsline," 30 November 2001)

UKRAINE
FORMER PRIME MINISTER QUESTIONED OVER JOURNALIST'S MURDER.
Ukrainian President Leonid Kuchma said on 23 November that a top government official, Transportation Minister and ex-Prime Minister Valery Pustovoitenko, would be interrogated by prosecutors about the murder of a journalist that sparked a political scandal in that country. Earlier in the month, Pustovoitenko said he would reveal new information on the killing of Internet newspaper editor Heorhiy Gongadze after parliamentary elections next March. Kuchma called Pustovoitenko's statement groundless and politically motivated, according to Interfax.

Gongadze, widely regarded as a critic of alleged high-level corruption, disappeared in Kyiv more than a year ago. International investigators have concluded that a decapitated body found later in the woods near the Ukrainian capital was his. The killing raised questions in the West and among international human rights organizations about freedom and democracy in Ukraine. Opposition groups have protested about the slaying for months, citing recordings said to be made by a former presidential bodyguard and purportedly documenting Kuchma's involvement. Kuchma strongly denied the accusations.

On 27 November, Pustovoitenko was questioned by the Prosecutor-General's Office. Since then, no new information has been made public.

UKRAINIAN BRIBERY MENU.
According to a survey published on the website "Criminal Ukraine" in November, the following is a current price list for some of the most common bribes paid by Ukrainian entrepreneurs and citizens:

* To register a company (a small "Mom-and-Pop" business): $176

* To bribe a sanitation or fire inspector: $42

* To bribe a tax inspector: $87

* To have a telephone line installed: $200

From anecdotal reports by RFE/RL correspondents in Kyiv, a traffic speeding ticket can be avoided for $20, a drunk-driving ticket for $50. (In the Czech Republic, by comparison, a DWI ticket will be forgiven for a $100 "donation." The reason for the difference between Prague and Kyiv is that the average monthly salary of a traffic policeman in Prague is five times higher than that of his counterpart in Kyiv.)

END NOTE
THE TRACTOR DRIVER OF THE STATE -- THE CASE OF PAVLO LAZARENKO (Part 1).

The case of Pavlo Ivanovych Lazarenko, once one of the most powerful men in Ukraine and now an inmate at a federal detention facility in California, is a classic study of high-level corruption in Ukraine. It involves not only Lazarenko but a long list of players beginning with the Ukrainian president (who appointed Lazarenko prime minister), to the head of the Intelligence Service that vetted the appointment, to the Prosecutor's Office that watched as an impoverished nation was bled dry. It is also the story of a lax law-enforcement system and parliament which refused to investigate his dealings, preferring to let the dirty work be done by the United States and Switzerland and only afterwards becoming a minor participant.

The extent of Lazarenko's activities may never be known. The major frauds which have been documented in the West include his dealings with the Naukova State Farm, United Energy Systems of Ukraine, and the GHP Corporation scam. There is also evidence of his relationship with President Leonid Kuchma in the creation of a mobile-phone company in Ukraine, where Lazarenko's money was used as the start-up capital of this firm.

The case has been plagued by constant postponements of the trial date and changes in Lazarenko's defense team. It now is due to begin in 2002 in San Francisco.

THE SCIENTIFIC STATE FARM.

Pavlo Lazarenko began his career as a young tractor driver on a collective farm in the Dnipropetrovsk region of Ukraine. He rapidly rose in the ranks of Soviet Ukraine through loyalty to his superiors and a willingness to cut them in on deals that he controlled. At one point in his interrogation he admitted that, as prime minister, he always took 10 percent of every deal. It was also widely known that this 10 percent cut was shared by others.

The first documented scam that brought Lazarenko fame among the elite in Kyiv was connected with the unlikely commodity of Angus cattle.

Naukova ("Scientific") was a state-owned cattle-breeding farm located in the village of Taromsk in the Dnipropetrovsk region of Ukraine. Its director was Mykola Agafonov. It also became a "Leased Research Farm" (also headed by Agafonov) and eventually an agro-business of the Ukrainian Academy of Agrarian Sciences.

On 10 August 1992, when Leonid Kuchma was prime minister of Ukraine and Pavlo Lazarenko was the president's (at that time, Leonid Kravchuk's) representative to the Dnipropetrovsk region,. Agafonov signed two contracts with Dutch company Van Der Ploeg & Terpstra, B.V. According to those contracts, $11.088 million was to be deposited with ABN-AMRO Bank by Naukova, to be used by the Dutch firm to purchase 8,400 head of cattle for Naukova. Director Agafonov did not have the cash to buy the cattle, so he turned to Lazarenko for help in raising cash by selling ferrous metals and using part of the proceeds to pay for livestock. Lazarenko helped Agafonov obtain an export license from Kyiv for the metal, which he sold to Van Der Ploeg & Terpstra. Agafonov sold 64,000 tons of ferrous metals to the Dutch company, more than compensating for the amount needed to buy the Angus cattle.

According to information from Hryhoriy Omelchenko, the head of the Ukrainian parliament's anticorruption committee, these metals were then purchased from Van Der Ploeg & Terpstra by fugitive American financier Marc Rich, Concord Trade Limited, and Cargill.

These initial dealings took place when Kuchma was the Ukrainian prime minister. In 1993 Kuchma gave the "Scientific" farm 110 head of cattle free-of-charge in order to promote cattle breeding. Agafonov himself admitted that both Kuchma and Lazarenko were close to his company; according to Agafonov, Kuchma often visited the "Scientific" state farm at the time. It was also Kuchma, as prime minister, who had to approve the export licenses for ferrous metals from Ukraine.

In the so-called "Superseding Indictment" of Pavlo Lazarenko by the United States, dated 30 November 2000, it is stated:

"Lazarenko, while a government official in Ukraine, received money derived from fraud from Mykola Agafonov, who was the chief administrator of Naukovy State Farm...as follows:

"1. Lazarenko, while a government official in Ukraine, exercised his official authority to ensure that Naukovy State Farm received various benefits and privileges from the government of Ukraine, including the right to export metal products and raw materials produced by Ukrainian state enterprises.

"2. Agafonov then exercised the right to export metal products and raw materials by entering into a series of agreements with Van Der Ploeg & Terpstra, B.V., in Leeuwarden, the Netherlands, for the purchase of cattle and other related supplies by Naukovy State Farm, pursuant to which the cattle and other related supplies were to be paid for in part with Ukrainian government funds and in part from the proceeds of the sale of metal products and raw materials exported from Ukraine.

"3. After the metal products and raw materials were exported from Ukraine and sold, the proceeds from the sale of metal products and raw materials exceeded the actual price of the cattle and other related materials.

"4. Agafonov caused the preparation of false contracts in which the value of the cattle was fraudulently inflated to account for most of the excess funds received by him from the sale of metal products and raw materials....

"7. Of the approximately $34,000,000 that were deposited into the ABN-AMRO accounts from the sale of metal products and raw materials, Agafonov transferred approximately $20,000,000 into personal accounts belonging to himself, his associates, and Lazarenko, including a transfer of $1,205,000 to Account No. 502.607.03L in the name of LIP Handel A.G., in Fribourg, Switzerland; a transfer of $2,972,000 and $4,000,000 to account No. 08-05785-3 in the name of KATO-82 at Credit Lyonnais Bank in Zurich, Switzerland; and a transfer of $6,014,000 to account No. 21383 at Banque Populaire Suisse in the name of ORPHIN. S.A. which was subsequently transferred to account No. 21768 in the name of NIHPRO at Banque Populaire Suisse controlled by Lazarenko."

The Kuchma-Lazarenko relationship continued to bear fruit in the coming years.

(To be continued.)

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