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Wednesday 16 October 2019

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WASHINGTON -- The relaxation of restrictions on the sale of cannabis in the United States is stoking opportunities for staggering overnight wealth reminiscent of the rush to grab assets when the collapse of communism abruptly opened up a big chunk of the world for business, legal and otherwise.

Not surprisingly, some capitalists from former Soviet states want a piece of the action.

Enter Lev Parnas and Igor Fruman, the two Soviet-born businessmen detained on October 9 -- as they were about to board a flight out of the United States with one-way tickets -- and arrested on suspicion of crimes including violating campaign-finance laws.

A federal indictment unsealed the next day alleges that Parnas and Fruman, along with two other men, made illegal political donations funded by a Russian seeking to secure retail marijuana licenses in multiple U.S. states.

U.S. citizens Parnas and Fruman are associates of Rudy Giuliani, the former New York mayor who is now President Donald Trump's personal lawyer and a central figure in the impeachment inquiry that focuses largely on interactions with officials in Ukraine.

In addition to other allegedly illegal political contributions, the indictment charges that the defendants sought to funnel cash from an unnamed Russian businessman identified as "Foreign National-1" into the campaign coffers of American politicians they saw as key to their plan for a U.S.-based recreational marijuana business.

The words "Russian businessman" don't necessarily bring marijuana to mind – more likely oil, gas, aluminum, or steel. But, in fact, industry analysts suggest it may be a natural fit.

"Every decade there is a big opportunity that remakes the world and skyrockets, and cannabis is that industry for this time period," Troy Dayton, the chief executive officer of San Francisco-based cannabis research firm The Arcview Group, said in an interview with RFE/RL.

Workers trimming cannabis buds inside a legal Las Vegas marijuana operation (November 2018)
Workers trimming cannabis buds inside a legal Las Vegas marijuana operation (November 2018)

What separates the cannabis industry's moment from the Dot.com boom and other new market opportunities is that it is not driven by innovation but by political change, he said.

"In that way, it is more similar to the fall of the Berlin Wall and the opening of trade with China," Dayton said.

Chinese ruler Deng Xiaoping undertook economic reforms at the end of the 1970s that would turn an impoverished nation into the world's second-largest economy in just a few decades.

The collapse of communism in Eastern Europe in 1989 and the fall of the Soviet Union two years later injected more than 400 million people into the global economy, creating opportunities for making a quick buck – or billions of them – in sectors from banking to consumer goods and real estate.

Fierce Competition

Since 2012, eleven U.S. states and Washington, D.C. have legalized recreational marijuana for millions of people, creating an industry expected to reach $13 billion in sales this year. That is forecast to grow to $35 billion by 2024, according to Arcview.

But the U.S. marijuana industry faces a challenge in distributing cannabis licenses similar to one that was experienced by governments of the former Soviet republics and satellite states as they sold off state assets, including natural resource licenses, in the 1990s: ensuring a transparent and fair process.

In Russia, Ukraine, and several other countries in the region, some of the most coveted state assets went to insiders at lowball prices, creating a small class of tycoons. That has led to extreme wealth gaps and tarnished the transition to capitalism in the eyes of millions who felt disenfranchised.

U.S. states are offering a limited number of licenses to grow, produce, and sell marijuana-infused products, creating fierce competition for each one.

It's estimated that the U.S. marijuana industry will be worth tens of billions of dollars in just a few years. (file photo)
It's estimated that the U.S. marijuana industry will be worth tens of billions of dollars in just a few years. (file photo)

Casino executives, lawyers, lobbyists, former officials and their relatives, were among the first license winners in the state of Nevada.

When the state held another auction for 64 marijuana retail licenses in 2018, it received 462 applications. Nevada ended up awarding 61 licenses to 17 companies, an outcome that sparked lawsuits from excluded companies claiming "widespread corruption" among officials, including acceptance of kickbacks.

Recent transactions have highlighted the huge profits to be reaped from winning Nevada licenses, especially in Las Vegas, the gambling and entertainment hub that is the state's largest city and one of the top tourist destinations in the United States.

Four Nevada cannabis companies that did not exist several years ago were purchased for between $40 million and $290 million in 2018.

According to the indictment, Ukrainian-born Parnas and Belarusian-born Fruman – along with Andrei Kukushkin, a Ukrainian citizen, and U.S. native David Correia – "made plans to form a recreational marijuana business that would be funded by Foreign National-1 and required gaining access to retail marijuana licenses" in states including Nevada.

Ukrainian-born Lev Parnas (left) and Belarusian-born Igor Fruman (file photo)
Ukrainian-born Lev Parnas (left) and Belarusian-born Igor Fruman (file photo)

Along with the unidentified Russian businessman who is "Foreign National-1," the four men met in Las Vegas in early September 2018 to discuss the venture, it says.

Kukushkin and Correia registered a company in Nevada in September 2018 but missed the deadline to apply for some of the 64 licenses on offer.

Kukushkin, a former investment banker at Moscow-based Renaissance Capital -- which helped pioneer Russia's stock market in the 1990s -- had already made investments in a California cannabis firm with Andrei Muravyov, the former president of a Siberian cement company, according to a civil lawsuit filed earlier this year in the state.

Muravyov multiplied the fortune he made in the 2000s in cement by investing in technology. He helped back Silicon Valley-based venture firm Run Capital. Muravyov, a Russian citizen based in Moscow, could not be reached by phone for comment.

Susceptible To Abuse

Russians were among the early investors in cannabis markets such as Colorado, which legalized marijuana for recreational use in 2012 and was one of the first two states to do so, Chris Walsh, the founding editor of MJBizDaily, a leading industry publication, told RFE/RL.

So, the unidentified Russian investor's interest in funding license acquisitions was not extraordinary.

Nor, necessarily, was his team's plan -- as alleged in the indictment -- to increase its chances of a successful bid by donating up to $1 million to federal and state political committees.

In August 2019, the FBI expressed concern over corruption in the awarding of U.S. cannabis licenses, particularly in the western states, which include Nevada. Licenses were worth as much as $500,000, the chief U.S. law enforcement agency said.

U.S. states are offering a limited number of licenses to grow, produce, and sell marijuana-infused products, creating fierce competition for each one.
U.S. states are offering a limited number of licenses to grow, produce, and sell marijuana-infused products, creating fierce competition for each one.

Bernie Sucher, an American business pioneer in 1990s Russia and now the chief executive officer of Tikun Olam USA, a producer of cannabis strains and products, said that, like many other government-influenced sectors, the marijuana industry is susceptible to abuse.

"In some of these states, you have limited licenses controlled by a small group of bureaucrats or elected politicians and there is a perception that if you get one of those licenses, there is tremendous value. And that is an ideal structure to promote corrupt dealings," said Sucher, who was among the first Americans to start a business in post-Soviet Russia and went on to hold key positions at investment banks there.

Donations

The Nevada Independent newspaper has reported that marijuana companies donated nearly $750,000 to the 2018 gubernatorial campaign of Democratic candidate Steve Sisolak, who defeated his Republican rival, Adam Laxalt.

One Nevada cannabis business owner donated $60,000 to Sisolak through six companies and another $10,000 in his own name to legally get around the contribution limitations, state records show.

According to the indictment of Parnas and the other three men, the unidentified Russian businessman sent two tranches of $500,000 each to a bank account controlled by Fruman shortly before the November 2018 elections "to attempt to gain influence and the appearance of influence with politicians and candidates."

Furman made a $10,000 donation to Laxalt as well as to Wes Duncan, the Republican candidate for Nevada attorney general, state records show.

Kukushkin said in a text message to his partners that they would need a "green light" from Laxalt in order to be able to participate in the already-closed Nevada cannabis licensing round.

The Sacramento Bee, a newspaper based in California's capital, has reported that Parnas and Fruman also donated to several California politicians, including U.S. House Minority Leader Kevin McCarthy, a Republican.

Parnas, Fruman, Correia, and the Russian national continued to meet into the spring of 2019, but the marijuana business never materialized, the indictment says.

Kukushkin continued to pursue cannabis retail licenses including in Los Angeles, according to state filings and consultants. Arcview forecasts that California will account for one-fifth of the U.S. cannabis market by 2024.

Kukushkin is also a business partner of Garib Karapetyan, who is the largest cannabis operator in Sacramento with eight dispensaries, according to the The Sacramento Bee.

The FBI is now investigating whether Sacramento cannabis owners paid bribes to officials, the paper reported.

Mark Galeotti, a Russian affairs analyst with specialized knowledge of organized crime and corruption, said criminal entrepreneurs from the former Soviet Union "thrive where they can leverage clumsy bureaucracies and wide disparities in supply and demand."

That, he said, applies to the legal U.S. marijuana industry.

Afghan election commission workers count ballot papers from the September 28 presidential election in Kabul.

Turnout in Afghanistan's presidential election was already a record low, at around 26 percent. But it could sink more as election authorities sift through the votes cast in the September 28 poll.

The election commission could discard more than 700,000 of the 2.7 million votes cast in the poll because they fail to meet new rules aimed at combating fraud.

The hitch could undermine a vote that organizers hoped would mark a turnaround from parliamentary elections a year ago that were tainted by widespread organizational and technical issues and the previous, disputed presidential poll in 2014 that threatened to tear the country apart.

The commission used computerized voter lists and biometric voter verification in an effort to prevent the kind of large-scale ballot stuffing that tainted those elections. It has said it will only validate ballots that meet its criteria.

Afghan Presidential Vote Marred By Violence, Low Turnout
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The commission said the biometrically verified turnout from 85 percent of polling stations was around 1.7 million. Observers said once the data from the remaining polling stations is added, the voter turnout will drop to around 2 million and then fall further once duplicate ballots are weeded out.

"It will further lower the turnout, which is already the lowest compared to past elections," said Ali Adili, a researcher at the Afghanistan Analysts Network (AAN), an independent think tank in Kabul. "But it might help produce a clean vote."

Dramatic Drop

According to the figures released by the election commission on October 14, the provinces with the biggest percentages of unverified votes were the northern province of Baghlan with 85 percent, the eastern province of Paktia with 77 percent, and the southern provinces of Kandahar and Helmand, with 72 percent and 68 percent respectively.

Even before the commission released its updated figures, the seemingly inflated number of votes and even turnout in these provinces had raised suspicions that the outcome of the election could be significantly affected by fraud.

To highlight the environment of distrust, the two front-runners in the election -- incumbent Ashraf Ghani and current Chief Executive Officer Abdullah Abdullah -- have each claimed victory and signaled they will not accept defeat, a scenario that could trigger a political crisis and spill over into violence.

In 2014, their disputed runoff threatened to spark a civil war before they agreed to a power-sharing agreement brokered by the United States.

Afghan President Ashraf Ghani (left) and Chief Executive Officer Abdullah Abdullah (file photo)
Afghan President Ashraf Ghani (left) and Chief Executive Officer Abdullah Abdullah (file photo)

The sides have accused each other of fraud and sparred over the criteria used to separate valid from invalid votes. Abdullah has said only biometrically verified votes should be counted, while Ghani's campaign has been more open to also counting unverified ballots.

Their respective supporters have also bickered over the new figures. Abdullah's supporters say most of the provinces with the highest numbers of unverified votes were in the south and east, predominately Pashtun areas that are likely to vote for Ghani. Meanwhile, Ghani's supporters say unverified votes were also recorded in the north, Abdullah's support base.

Allegations of fraud have surged, with the electoral complaints commission recording more than 4,000 complaints.

As the level of mistrust grows, Adili says the legitimacy of the election could come down to the election commission's complicated process of "tallying and cleaning votes."

Potential Delays

The election commission is expected to release the preliminary results of the election on October 19. But it has said there might be a delay of up to a week.

Commissioners said they were still uploading the biometric data from devices and reviewing result sheets from the nearly 5,000 polling centers.

The tally has been disrupted by technical troubles and reported attempts to hack into the commission's servers. Before the preliminary results can be released, the commission must discard invalid votes.

Alice Wells, the top U.S. State Department official for South Asia, who visited Kabul on October 15, said the election commission had a "challenging task to review votes, process complaints, concerns, and allegations of fraud," adding that it was better to "deliver an accurate result rather than a rushed one."

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