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Corruption Watch: December 27, 2001


27 December 2001, Volume 1, Number 9

NOTE TO READERS:
"Crime, Corruption, and Terrorism Watch" wishes its readers a safe holiday and a (legally) prosperous New Year.
SPOTLIGHT
THE MEDIA AND CORRUPTION
The media in postcommunist societies have played a dual role when it comes to reporting on high-level corruption. While some news outlets, mostly independent Internet publications, have been critical of official corruption -- and at times have printed investigative reports on their activities -- many have remained silent about the most glaring of crimes.

There are numerous reasons for this duality. Many newspapers and television and radio stations rely heavily on national and regional governments for indirect subsidies in order to remain in business. The low advertising base in most postcommunist countries makes many news outlets reliant on such revenues. These "indirect subsidies" are often paid ads from political parties in power in the region. Fear of losing this revenue often leads to self-censorship, at best -- or to brutal pressure by sponsors as the norm -- when it comes to writing about corruption.

Those who rely on commercial advertising revenue are faced with their own set of problems. Last year a commercial radio station in Kyiv broadcast an investigative report about the dealings of one of their commercial sponsors. The next morning the sponsor called and canceled his advertising contract, and one of the station's founders was summoned to the president's office to be read the riot act by the president himself. The broadcast correctly stated that the president's daughter was working in a management position in that company and that the president's brother-in-law was a managing director of the company. The report also stated that the founding capital of the company had come from one of the overseas accounts owned by Pavlo Lazarenko, the former prime minister of Ukraine who was arrested in the United States on money-laundering charges.

It is hardly a secret that many websites and newspapers in Russia and Ukraine are owned or funded by corrupt officials or people close to organized crime groupings. These websites specialize in spreading "kompromat" (compromising information -- true or otherwise) about enemies of their sponsors. The net result is a distorted picture of who is corrupt and who is not. In the campaign to remove Viktor Yushchenko as prime minister of Ukraine, media owned and controlled by criminal groups close to the president published daily diatribes about Yushchenko, accused his wife of being a "CIA agent" (she is an American citizen) and denigrated his accomplishments.

The price of exposing corruption is high. The most visible case is the unsolved murder in September 2000 of Heorhiy Gongadze, the founder of Internet newspaper "Ukrainska Pravda." Gongadze took it upon himself to expose high-level corruption in Kyiv. It is not the only case of its kind in the former USSR. Many journalists have been killed, beaten, arrested, or threatened. Unfortunately, this pressure has forced numerous journalists to examine their attitudes toward their own honesty and ask themselves: Is it worth the consequences to expose corruption?

CZECH REPUBLIC
MINISTER, AUTHORITIES INSIST SUSPECTED SEPTEMBER TERRORIST MET IRAQI AGENT IN PRAGUE.
Czech Interior Minister Stanislav Gross responded to recent media reports questioning whether suspected terrorist ringleader Mohammad Atta met in Prague with an Iraqi intelligence agent on 17 December, saying through a spokeswoman that he stands by his original account of events. Atta and the agent in question met at least once in the Czech capital, Gross said, based on a credible account provided by the Czech Security Information Service. In Washington, AP reported that U.S. officials also still believe the meeting occurred, despite a leading Czech daily's assertion that the government lacks evidence of such an encounter. ("RFE/RL Newsline," 18 December 2001)

EUROPEAN UNION
THE EU ARREST WARRANT.
The European Union in mid-December agreed the terms for a common arrest warrant, which would cover 32 crimes. They are to include, among others, fraud, embezzlement, terrorism, and acts stemming from racism. "The Economist," in its 14 December issue, explained the new European legislation:

"This week's agreement on a common arrest warrant for the European Union is a big step towards EU integration. Since September 11th, the Union wants to be seen to be doing more to fight cross-border crime. So its members have dropped long-standing reservations about allowing each other more power to enforce cross-border arrests and extraditions. Italy, the last country to hold out, gave in this week...

"From 2004, when the legislation should be in place across the EU, people accused of such offences in one EU country could be arrested and deported to it by another with no need for lengthy extradition procedures. The only proviso is that the offence must carry a potential sentence of three years in prison.

"The agreement marks a departure in several ways. EU countries will enforce arrest warrants even for offences that are not crimes under their own law. They will extradite their own citizens like anyone else. Portugal, Greece, Austria and perhaps Italy will have to amend their constitutions."

LITHUANIA
EMBEZZLEMENT CHARGES AT LITHUANIAN OIL CONCERN.
The Lithuanian prosecutor-general has been investigating charges of mismanagement and possible corrupt practices at the debt-ridden Mazeiku Nafta oil concern, ELTA reported on 14 December. Some of these charges might involve the U.S.-based company Williams Management, which was hired to manage the enterprise. Management costs at Mazeiku came to over $10.5 million, and many of the charges do not have supporting documents. Thus far, three persons have been charged with stripping assets from the company.

RUSSIA
DUMA REJECTS PROBE INTO PRESIDENTIAL ADMINISTRATION CHIEF.
The State Duma on 14 December rejected a draft parliamentary inquiry requesting that Prosecutor-General Vladimir Ustinov probe media reports concerning allegations of illegal business activities by presidential chief of staff Aleksandr Voloshin. According to Interfax news agency, 171 Duma members voted in favor of the investigation, with one vote against and one abstention. At least 227 votes are needed to pass such a motion.

More than 10 newspapers have carried recent reports on the topic. The draft query was signed by members of the Communist, Union of Rightist Forces, Russia's Regions, and Agro-Industrial factions.

RUSSIAN DEPUTY COMMENTS ON INVESTIGATING CORRUPTION IN GOVERNMENT.
Aleksei Aleksandrov, the deputy chairman of the State Duma's Anticorruption Commission, appeared on the "Hero of the Day" television program hosted by Savik Shuster on 18 December 2001.

Aleksandrov made the following comments:

"The reason why today's meeting generated so much noise is that the commission has many serious documents regarding very well-known persons in our country, regarding many ministers who are in office."

He went on to list them: "These are, first of all, [Transport] Minister [Sergei] Frank; former [Atomic Energy] Minister [Yevgenii] Adamov; former First Deputy Finance Minister [Andrei] Vavilov; [Railways] Minister [Nikolai] Aksenenko; and [Energy] Minister [Igor] Yusufov.... This material was forwarded to the Prosecutor-General's Office. However, the prosecutor's office has refused to initiate criminal proceedings against some of these cases.... [T]oday only the activities of Aksenenko are being dealt with."

"Some members of the commission have accused the Prosecutor-General's Office of having refused to initiate or, conversely, closing criminal cases, where there is evidence of crimes being committed," Aleksandrov said. "In order to resolve this matter once and for all, it is necessary to have cooperation between the Prosecutor-General's Office and deputies. And, the acting first deputy of the prosecutor general, Valentin Valentinovich Semuchenkov,... said that they were ready to sit down with deputies, members of the Anticorruption Committee, and to consider evidence and to talk about the nature of these crimes. If they are against this, the [Anti-]Corruption Commission will publish it all in the open press," Aleksandrov said.

CELL-PHONE HACKERS UNCOVERED IN SOUTHERN RUSSIA.
The Federal Security Service (FSB) directorate in Rostov has uncovered two criminal groups involved in cell-phone swindles.

People seeking to get their cell phones repaired or upgraded at private, unauthorized workshops were the victims. Once the phones were in shop hands, using special cables, their phones were connected to computers to obtain their network access codes. The codes were then exploited by unauthorized users.

The FSB directorate told Russian television on 14 December that one cheated customer lost 43,000 rubles in 10 days.

Quite often, the criminals simply phoned phone users, passed themselves off as technicians from the state communication monitoring authority, and obtained all the necessary information. Russian law envisages up to two years in jail for such an offense.

RUSSIAN PRESIDENT DECREES EASING OF MILITARY EXPORT PROCEDURES.
Russian President Vladimir Putin signed a decree on military-technical cooperation with foreign countries to strengthen the system of military-technical cooperation on arms exports, the deputy head of the presidential administration, Sergei Prikhodko, told RIA news agency on 14 December. "Foreign customers display increasing interest in Russian weapons and military hardware. Therefore, technical maintenance and repair of military hardware that we are supplying abroad have acquired special importance," Prikhodko said.

The latest presidential decree "provides for broadening the circle of organizations and enterprises involved in military-technical cooperation with the effect of supplying spare parts, training, and auxiliary equipment to previously supplied military hardware and to its technical maintenance and repair," Prikhodko added.

The state intermediary [between Russian arms producers and foreign customers], the federal state enterprise Rosoboroneksport, and Russian enterprises authorized to sell weapons and military hardware on their own will now be able to concentrate on the promotion of new Russian military production.

The presidential decree stipulates that the export of spare parts for military hardware that is subject to Russia's international obligations concerning arms-export control and non-proliferation of weapons of mass destruction and missile technology must be strictly controlled in accordance with the existing standards.

SERBIA
ANTICORRUPTION COUNCIL FORMED.
The Serbian government formed an anticorruption council on 13 December, according to Tanjug news agency. The council will be headed by Slobodan Beljanski, the Vojvodina Law Society president. His deputy will be Predrag Jovanovic, the head of Transparency International in Serbia. The council will send legislative proposals to the Serbian government on officials' property registration, avoiding conflicts of interest, and a new bill on financing political parties.

UKRAINE
FIVE-HUNDRED FAMILIES AND $40 BILLION.
The head of the Progressive Socialist Party of Ukraine, Natalia Vitrenko, claimed at a recent public meeting in the Crimea that since independence, $40 billion has been sent abroad into private bank accounts belonging to 500 families. Vitrenko claimed that the statistics were compiled by the Ukrainian Security Service (SBU). In the report on her statement on the "Ukrainska Pravda" website on 17 December, Vitrenko is quoted as saying that the money was sent abroad not only by "Lazarenko, Surkis, [and] Volkov, there are others as well, the SBU claims that a total of 500 Ukrainian families sent this amount abroad."

LAZARENKO GOES TO TRIAL.
The trial in the U.S. of former Ukrainian Prime Minister Pavlo Lazarenko has been set for November 2002, according to the Federal District Court in San Francisco. On 6 December, District Judge Martin J. Jenkins denied a motion by Lazarenko's defense to dismiss the indictment or strike down portions of the superseding indictment, RFE/RL's Ukrainian Service reported on 15 December.

SLAVYANSKY BANK TRIAL SET FOR JANUARY.
The trial of Boris Feldman, the former majority shareholder in beleaguered Slavyansky Bank, is set to begin on 24 January 2002. According to Internet publication "Ukrainska Pravda" on 18 December, Feldman was a majority shareholder in Ukraine-based Slavyansky Bank who was arrested and held on charges of having violated the law in various dealings with the bank. He has been in pre-trial detention for two years. Lower courts have dismissed the case, but the Prosecutor-General's Office -- in apparent violation of the law -- has rejected these decisions and is bringing the case to trial.

The Slavyansky Bank scandal was exposed in a tape-recording made in President Leonid Kuchma's office by one of his security guards, Mykola Melnychenko. In the excerpt dealing with Slavyansky, Kuchma seems to be plotting to bankrupt the bank in a conversation with Mykola Azarov, the head of the tax administration of Ukraine. Prior to the bankruptcy, members of Kuchma's entourage had taken out large loans for enterprises they headed. One such loan went to the Kryvostahl Enterprise, at the time headed by Oleh Dubyna, who is now a deputy prime minister. When Slavyansky went into bankruptcy, the loans were not repaid. A total of $100 million was lent out.

Feldman's problems began when Azarov's tax police demanded that he pay a tax-related fine of $16 million based on alleged misconduct. A civil court ruled that the charges were unfounded; thus the fine was mere extortion. The tax police soon opened a criminal case against him over the same accusations, and in February 2000 had him imprisoned. On 27 September 2001, the Pechersky City Court in Kyiv ruled that his imprisonment was illegal and ordered him released. The deputy prosecutor-general, in turn, declared the court decision illegal and issued an order keeping him in jail. [According to Ukrainian law, a prosecutor cannot overrule a court decision; only a higher court can do this.] In detention, Feldman was allegedly tortured in order to force a confession. During the proceedings against Feldman, the government stripped Feldman and many small shareholders of their shares in the bank, and sold the bank at less than 10 percent of its value, also in apparent violation of the law.

The case against Feldman also has elicited a number of anti-Semitic statements by government officials and members of parliament. On 25 November 2001, a communist member of parliament, Pavlo Baulin, attacked the "Jewish-gay mafia" at Slavyansky Bank and condemned groups defending Feldman.

END NOTE
THE TRACTOR DRIVER OF THE STATE -- THE CASE OF PAVLO LAZARENKO (Part 4).

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.

Preceding episodes of this article have shown Lazarenko to be using his official position as prime minister to enrich himself and close friends; yet he was never questioned by Ukrainian law-enforcement agencies about his activities. By 1997, Western pressure to end his corrupt term in office had become more persistent, and Ukrainian President Kuchma was forced to act.

"PAVLO FROM PANAMA"

Western pressure was growing on Kuchma to put Lazarenko behind bars. In December 1997, Kuchma fired Hryhoriy Vorsinov and appointed Oleh Lytvak as Ukraine's acting prosecutor-general. On 23 December 1997, Lytvak formally charged Lazarenko with criminal activities.

But Lazarenko was a people's deputy and therefore immune from prosecution. Not that this prevented non-members of parliament from illegal activities; but it was a convenient shield for many.

Angry at Kuchma for having relieved him of his prime minister's post, Lazarenko went on the offensive. First he created his own political party, Hromada, which he stated was in direct opposition to Kuchma. Then he proclaimed that he would run for president in the next elections. Kuchma was beginning to take notice of Lazarenko's new face. Then the offensive grew. Lazarenko wrote in October 1998:

"I want to state, and place on the record, that the 'case of the Swiss bank accounts' and 'Lazarenko's dacha [vacation home],' and all the other, I am convinced, affairs which will be concocted by the masters of political intrigues in the Cabinet of Ministers and by the prosecutor-general are an open attempt to discredit the opposition, nothing but a commissioned political affair. Knowing our Prosecutor-General's Office, I would not be surprised if I am to be accused of murdering the Russian Emperor, Nikolai II, or taking part in the murder of Trotsky." ("Holos Ukrainy" 28 October 1998)

Pavlo ("Pasha," as he was called by his cronies from Dnipropetrovsk) knew his topic. He had himself witnessed many such perversions of justice by the Prosecutor-General's Office. Interestingly enough, Lazarenko did not go after Kuchma in this article. It seems that he still had hope that Kuchma would not press for his imprisonment, and that a deal could be cut.

Neither did Kuchma press for a drastic solution to the problem. If anything, Kuchma sought to delay Lazarenko's case and keep parliament from a vote on lifting his immunity. It is now clear that Kuchma was afraid of provoking Lazarenko into naming how much money he might have given him.

Lazarenko felt that he was still powerful enough to conduct his businesses. On 2 December 1998, he was detained while attempting to enter Switzerland by car and using a Panamanian passport he had obtained by "investing money into the Panamanian economy." He was accompanied in the car by a man of Russian citizenship. On 4 December, he was formally arrested by Swiss authorities for money laundering in criminal case No. P/2489/98, which was being investigated in Geneva.

Lazarenko apparently was going to check on his accounts in Switzerland, or transfer money into other, new accounts. By this time, he did not trust any of his closest cohorts to do so for him -- including his closest co-conspirator, Petro Kirichenko.

He needed to transfer money to California -- where he had purchased a mansion in Novato (near San Francisco) for $7 million, and where his wife and children were living. The maintenance and taxes alone on the house were not insignificant, and he needed to provide for his family. Normally, he would have entrusted these tasks to Kirichenko, but for some reason he did not.

Pavlo Lazarenko spent 13 days in a jail cell in Geneva. Then on 17 December, bail in the amount of 4 million Swiss francs was posted by an unknown benefactor, and Lazarenko was allowed to go free, provided that he return to Switzerland to stand trial on money-laundering charges.

(To be continued.)

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