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Corruption Watch: December 20, 2001

20 December 2001, Volume 1, Number 8
When the Soviet Union collapsed and newly elected parliaments came to power in the first true multiparty elections in the newly established independent states, these parliaments ushered in the concept of parliamentary immunity. However, this Western concept was perverted to protect known criminals from prosecution. It was more of what RFE/RL analyst Victor Yasmann once characterized as a continuation of the immunity granted to members of the nomenclature in the USSR. The nomenclature was a caste that once controlled all economic, political, and scientific life in the country. It lived by its own internal rules and was not subject to the rule of Soviet law.

The result was dramatic -- in thousands of elected councils -- from parliaments to local city and district councils, tens of thousands of elected lawmakers suddenly became immune from criminal prosecution. Among them were thousands of corrupt officials, members of criminal organizations, and thousands more who wanted to use this newly created immunity to begin engaging in criminal activity.

Thus, in Ukraine, numerous individuals with dubious reputations got elected to the highest legislative body in the country as well as to local councils. One was elected to the national parliament while sitting in a jail cell. Another has been the subject of numerous inquiries by the Polish police on charges of smuggling stolen cars into Ukraine. Some members of parliament are not allowed to enter the United States because of their criminal activities. And while a national referendum held in 2000 included a provision to cancel this immunity, it still has not become a law.

The situation in Russia is equally bad. Members of Russian organized crime groups flock to become candidates for elections in order to protect themselves from prosecution. In the Russian Far East, almost 30 percent of those seeking elected office in some regions are members of known organized criminal gangs. A number of members of the State Duma have been exposed as members of criminal gangs, yet in 10 years only two Duma members have had their immunity lifted.

In Latvia, the question of parliamentary immunity and corruption is one of the main stumbling blocs to the country's entry into the European Union.

The West has warned these countries about this anomaly, but this has had little or no impact. In theory, parliamentary immunity can be lifted from a member of the Russian or Ukrainian parliament (as was the case with former Ukrainian Prime Minister Pavlo Lazarenko, but this was done only after he had fled the country).

Given the negative consequences for those nations which allow for such real and potential abuse of parliamentary democracy, it might be useful for the European Community and the Parliamentary Assembly of the Council of Europe to intervene and help interpret the concept of "parliamentary immunity" to free it of the rampant corruption it currently fosters.

"The Wall Street Journal" on 11 December described in detail numerous arms sales by Czech and Slovak arms dealers to rogue regimes throughout the world after the collapse of communism. In an article titled "Arms Industries in Eastern Europe Face Tough Post-Sept. 11 Scrutiny," the paper writes:

"To combat the problem, Czech officials announced in October the creation of an executive committee to scrutinize arms deals and review policy. In Slovakia, less than a month after Sept. 11, 2001 the Ministry of Economy produced a classified report on past arms deals to "sensitive" countries, which the government will use to review policy. Meanwhile, the Slovak cabinet has introduced a bill that would tighten controls on exports of so-called dual-use technology -- that which can be used for both civil and military purposes, such as tractor parts or chemicals. Slovakia made headlines this year when Wadih el-Hage, the al Qaeda member convicted in the 1998 U.S. Embassy bombings in Africa, said during his New York trial that he purchased spare tractor parts and shopped for bitumin, urea and nitrogenous fertilizer in Slovak towns."

The article, written by Rick Jervis as a special for the paper, lists the following "controversial" arms sales involving Czech Republic and Slovakia:

"August 1993: A shipment of 26,800 Czech machine guns, 5,000 pistols, 128,000 magazines and 17 million cartridges is intercepted before it is shipped to Bosnia, which is under U.N. embargo. The order's paperwork said it was intended for Panama.

"1997: Czech intelligence officials, working on a tip from Turkey, warn against sale of Tamara radar systems they say are intended for Iraq. Deal does not go through. The producers, Pardubice-based Tesla, deny the allegations. Nonetheless, former Premier Vaclav Klaus has to explain the situation to then-U.S. Vice President Al Gore during official U.S. visit.

"Fall 1998: Russian businessman arrested and charged with illegally selling 365 surplus Czech armored rocket launchers to North Korea and China through Prague-based business.

"March 1999: Czech firm Agroplast accused of illegally trying to ship six Kazakh MiG fighter planes to North Korea. Shipment is confiscated. Agroplast denied the allegations.

"October 2000-February 2001: Slovak brokers involved in plan to ship Mi24 helicopter gunships from Kyrgyzstan to Liberia which is under U.N. embargo. One helicopter is shipped, the other is confiscated by Slovak customs agents in Slovakia.

"February 2001: 106 Russian-made T-54 tanks are delivered to Yemen, despite the country's reputation for diverting weapons to Sudan, which is under a European Union embargo.

"April 2001: Customs agents in Bulgaria confiscate a transport plane from Czech Republic with six howitzers and a cache of AK-47 assault rifles. Plane was scheduled to go to Georgia but had flight plans for Eritrea, which is under U.N. embargo."

Czech and Slovak police detained 22 Czechs and one foreigner, members of a gang specializing in export and import fraud that earned them 100 million Czech crowns ($2.8 million), according to Czech news agency CTK on 5 December.

Most of those detained have been accused of tax evasion and criminal conspiracy and face up to 12 years in prison, said a police spokesperson.

The gang was well-organized and operated not only in the Czech Republic and Slovakia, but also in Hungary, Ireland, Poland, and the United States. The group used a network of firms that sold worthless goods. Police found the goods and account vouchers of the firms during home searches and froze seven accounts in Czech banks.

The operation was jointly organized by the Czech economic counterintelligence service (SPOK), the Prague investigator's office, the Slovak financial police, the Bratislava regional investigator's office, and Slovak customs officers. Some 100 SPOK detectives took part in the operation.

From mid-December, it is no longer possible to open a savings account in Hungary without the account-holder revealing his name, Hungarian radio reported. From January, only banks and their agents will be permitted to change money; existing money-exchange outlets must close shop by 30 June 2002. The stipulations are contained in a law against terrorism and money laundering that was adopted on 27 November, the broadcaster said.

Real estate firms, art and antique dealers, and jewelers who deal in cash transactions are also obliged to report to the authorities cases that are suspected of involving money laundering.

The UN committee that monitors sanctions on Iraq is considering adding four new inspectors at one of two Iraqi export terminals in an effort to prevent oil smuggling, AP reported on 4 December. The chairman of the committee, Norway's UN ambassador Ole Peter Kolby, said the company that inspects Iraqi oil shipments, Saybolt International BV, has requested the additional inspectors for the port of Mina al-Bakr.

According to U.S. Vice Admiral Charles Moore, who is in charge of the multinational sanctions team in the Persian Gulf, Iraq has smuggled an estimated 11.6 million barrels of oil through the Gulf this year, down from an estimated 20 million barrels over the same period last year. ("RFE/RL Iraq Report," 7 December 2001)

The Russian capital witnessed an attempted contract killing on 8 December, according to Russian TV. An apparent attempt was made on the life of 40-year-old businessman Viktor Yakovlev on Malaya Bronnaya Street in central Moscow. An unidentified killer approached Yakovlev as he was coming out of a chemist's, fired a shot to his head and disappeared.

The first deputy speaker of the Russian Duma, Lyubov Sliska, announced on 11 December that the lower house included on its agenda a bill asking the Prosecutor-General's Office to investigate the activities of presidential administration head Aleksandr Voloshin, RIA-Novosti reported. Sliska said the request was initiated by the Communist and People's Deputy factions following mass media reports that Voloshin has appeared as a central figure in several corruption investigations. The parliamentarians will also request the investigation of former Vladivostok Mayor Viktor Cherepkov, to whom Voloshin allegedly offered $2 million to bow out of the city's mayoral race, according to Sliska. ("RFE/RL Newsline," 12 December 2001)

Russian law-enforcement authorities have been informed by the U.S. Justice Department that it is ready to transfer documents to them concerning the Russian side of the Bank of New York (BONY) scandal, "Vremya novostei" reported on 11 December. The documents pertain to the investigation of illegal transactions in 1994 worth some $2 million between BONY and the Russian company Nizhnegorodets. The transactions were allegedly authorized by then-governor of Nizhnii Novgorod Boris Nemtsov, and Anatolii Chubais, who headed the State Property Committee at that time. Several days after the transactions were made, "Nizhnegorodets" declared bankruptcy. The documents reportedly name Nataliya Gurfinkel-Kagalovskaya, a central figure in the BONY affair, as the person who executed the transaction. ("RFE/RL Security Watch," 14 December 2001)

Federal Security Service agents arrested Russian national Georgii Miroshnik on 11 December, "Kommersant-Daily" and reported. Miroshnik is accused of stealing materials from the former Soviet Army Western Forces Group in Germany worth 18 million German marks ($8.1 million) and has been sought on those charges since 1992. Miroshnik, who worked as an adviser to former Vice President Aleksandr Rutskoi and has been living in Greece, was lured to Moscow in a sting operation and arrested, according to the daily. ("RFE/RL Newsline," 12 December 2001)

Armaments for Chechen rebels and Afghanistan's Taliban were being supplied from Ukraine, Russian Duma Deputy Viktor Ilyukhin said at a press conference in Moscow that was reported by Interfax on 10 December.

Referring to information he claimed to have gotten from the Defense Ministry and the Russian secret services, Ilyukhin said Ukraine supplied over 200 tanks, 200 armored personnel carriers, and 30 light planes to Afghanistan via dummy companies in 1996.

"About 16 Chechen criminal groups are functioning in Ukraine. They are actively accommodating themselves in Eastern Ukraine, namely Donetsk, Dnipropetrovsk, and Kharkiv regions and Crimea," he added.

Most of the Odessa sea port is under the control of Chechen criminal groups, and guns are being supplied by sea from there to Chechnya, said Major General Venedikt Yashkin, who also took part in the press conference.

Ilyukhin said he made the information public "just now to attract the attention of the Ukrainian authorities to the serious problem" that might exacerbate relations between Russia and Ukraine. He said he hoped that Ukraine would realize the seriousness of the problem, which might damage its reputation.

Ukrainian reaction to the charges was swift and categorical. Leonid Rozhen, first deputy secretary of Ukraine's National Security and Defense Council and chairman of a presidential committee for cooperation in military technologies and export control, described the charges made by Ilyukhin against Ukraine as "absurd" and aimed at discrediting this country. He told Interfax-Ukraine on 11 December that the accusations were "absurd from the viewpoint of any expert dealing with international arms trade." The committee head added that it was not the first groundless charge of illegal arms trade leveled against Ukraine. "This is a purposeful campaign, whose target is to discredit Ukraine at the international level, embroil her with Russia, and remove Ukraine from participation in the world arms market," Rozhen said.

"Here we see one anti-Ukrainian guiding line, one common source of misinformation and division of roles between the players of this dirty game," he added. Rozhen expressed confidence that "Russia's top leaders have nothing to do with this slanderous campaign." "Yet Ukraine cannot but react to these provocative attacks made by a state officer, rather than a private person."

The next day, Ilyukhin gave an interview for Ukrainian ICTV in which he stated that he had been misunderstood:

ICTV: Mr. Ilyukhin, yesterday you accused Kiev of supplying Ukrainian arms to terrorists -- the Afghan Taliban and Chechen guerrillas. Ukrainian officials in the Supreme Council as well as Foreign Ministry have already denied your statements. Do you really have evidence of these rather serious accusations?

Ilyukhin: I would like to say that I do not possess any evidence of this, and, moreover, I can add that our news conference has been misinterpreted. At the news conference no statements were made accusing Ukrainian officials or Kiev authorities of their involvement in supplying arms to terrorist organizations in both the Chechen Republic and Afghanistan or any other areas. I am surprised at how quickly [all this was done] without having any factual and text material or video coverage from the news conference. Official authorities rushed to deny this information, and I feel suspicious about such a hasty reaction...

ICTV: [Interrupting] Thank you, but you are not giving clear answers. What was the point of your accusations? Will you please repeat your accusations? If you did not accuse Ukraine, then whom did you accuse?

Ilyukhin: The aim of the news conference was to draw the attention of Russian and international communities, as well as specialized law-enforcement bodies, to destructive activities by dealers in the criminal arms trade.

Ukrainian members of parliament were less categorical in their denials. In off-the-record statements, they stressed that Ukrainian officials have in the past issued very strong statements that have later been reversed when the facts came out -- for example, the recent denials of Ukrainian involvement in the downing of a Russian passenger airplane. According to one such member of parliament, Ilyukhin was probably talking about arms traffickers from Ukraine and not about the government being involved. However, this cannot be excluded, he added.


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.

Pavlo Lazarenko is alleged to have stolen hundreds of millions of dollars via different criminal enterprises. U.S. prosecutors have not even begun investigating his activities in other countries, limiting themselves to money laundered into the United States. In "KATO-82, CARPO-53, And Orphin," read how, with President Kuchma protecting him, Lazarenko was busy hoarding money in offshore bank accounts. During this period it was not uncommon to see transfers of millions of dollars from account to account in different countries.


According to the second superseding indictment in the Northern District of California, San Francisco Division:

Lazarenko received money arising from schemes to defraud committed by the owners and principles of United Energy International, Ltd. (UEIL), United Energy Systems of Ukraine (UESU), and Somolli Enterprises, Inc., which were related companies doing business in Ukraine and with Ukrainian state enterprises as follows:

In his official capacity, Lazarenko promoted the operations of UESU and related companies by, among other things, ensuring that UESU had a near-monopoly right to distribute natural gas to certain commercial enterprises in the Dnipropetrovsk region of Ukraine and by arranging for the Ukrainian government to pledge to use state funds to repay the debts of UESU payable to RAO Gazprom, the supplier of natural gas to Ukraine.

UESU fraudulently diverted -- to foreign bank accounts belonging to UEIL -- payments from Ukrainian customers for natural gas delivered to UESU and subsequently failed to pay RAO Gazprom for the natural gas.

Between 1996 and 1997, UEIL transferred approximately $50 million to Somolli Enterprises, a Cypriot company controlled by the same individuals who controlled UESU.

In 1996, Somolli Enterprises transferred the following sums: a) approximately $50 million to account No. 024/10/61310/00 at AmerBank in Poland in the name of "ORPHIN, S.a."; b) approximately $14 million to account No. 5451 in the name of "WILNORTH"; c) approximately $23 million to account No. 21383 at Banque Populaire Suisse in the name of "ORPHIN, S.a."; and d) approximately $14 million to European Federal Credit Bank correspondent account No. 1150-645039 at Pacific Bank in San Francisco for credit to account No. 151897 in the name of "ORPHIN, S.a."

All were accounts controlled by Peter Kiritchenko. The money was then transferred to accounts controlled by Lazarenko, including account No. 08-05785-3 in the name of "KATO-82" at Credit Lyonnais in Zurich, Switzerland; account No. 5353 in the name of "CARPO-53" at Bank SCS Alliance in Geneva, Switzerland; and to accounts at European Federal Credit Bank, among other accounts.

Prior to appointing Pavlo Lazarenko the country's prime minister, President Leonid Kuchma was aware of his past and his sins (see "End Note," "RFE/RL Crime, Corruption, and Terrorism Watch," 13 December 2001). It is clear that Kuchma disregarded incriminating documents given to him by Hryhoriy Omelchenko -- the former head of a parliamentary commission on combating corruption and author of a 1999 book titled "Corrosion of Power" -- and instead chose to have Omelchenko investigated instead of Lazarenko.

But by early 1997, Kuchma was coming under intense Western pressure to have Lazarenko removed. Instead, he chose a course of passive resistance, one in which the prosecutor-general dragged his feet in the investigation of Lazarenko. And Kuchma clearly had the right man for the job.

Hryhoriy Vorsinov was a local prosecutor from Dnipropetrovsk who was already battling allegations that he participated in various illegal enterprises until one day he came to the attention of politicians in Kyiv. They immediately noticed his talents and brought him on board.

In 1993, the entire staff of investigators at the Prosecutor-General's Office in Dnipropetrovsk had sent a letter to the prosecutor-general in Kyiv asking that "H. Vorsinov," the regional prosecutor, be removed for illegally terminating cases, abusing his position, and on moral and ethical grounds. In response to that letter, all the investigators whose signatures appeared on it were summarily sacked.

In October 1995, a parliamentary anticorruption commission recommended that Vorsinov not be appointed prosecutor-general. Despite that protest, President Kuchma chose him for this sensitive job. It was among the methods the president employed in implementing his decree of August 1994 "on combating corruption."

It was Vorsinov who was given the delicate task of dealing with the accusations against Lazarenko. He did so by stalling and prolonging the investigation, by spending more time investigating the whistle-blower, Omelchenko, than the accused, Lazarenko. There is little doubt today that this entire scenario was cooked up by Kuchma, who had been protecting, and possibly benefiting from, the protection being granted to Lazarenko from the very beginning.

On 1 July 1997, Lazarenko was relieved of his duties as prime minister of Ukraine. The pressure from the West had become too much for Kuchma to bear. Lazarenko had become a liability and thus had to go.

(To be continued.)