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Corruption Watch: September 4, 2003

4 September 2003, Volume 3, Number 31
Vladimir Gusinskii, a former Russian media kingpin who has been living in self-exile in Israel since 2001, was arrested by Greek police on 21 August as he tried to enter the country at Athens International Airport. He was carrying Russian and Israeli passports. According to a 25 August report in the British-based "Guardian," his lawyers claimed that the Interpol warrant on which he was arrested was not valid. Interpol headquarters in Lyons rescinded the international warrant for his arrest in July 2001. Reports in the Russian media have said that the Prosecutor-General's Office is still pursuing Gusinskii on charges of defrauding the state of $ 250 million.

The report on Gusinskii's arrest in the 26 August edition of "The Moscow Times" stated that it remained unclear what charges Gusinskii was wanted on and whether the Prosecutor-General's Office has asked for his extradition. Russia and Greece have a bilateral agreement on extradition, and Athens has extradited a number of Russians at Moscow's request in recent years

"The silence suggests that Gusinskii's arrest caught prosecutors off-guard and they are trying to find a way to capitalize on the unexpected opportunity," a source close to Gusinskii said. "It seems this all began as an accident, but now we have no idea how it is going to unfold," "The Moscow Times" reported.

According to the daily, Gusinskii was stopped after he presented his passport at the Athens airport and border officials found an international warrant for his arrest in their computer database. The officials then phoned Interpol's headquarters, which informed them that there was no warrant. Greek authorities, however, then contacted the Russian branch of Interpol and were told that Russian prosecutors are still investigating Gusinskii.

The 51-year-old Gusinskii was one of a small number of Russian businessmen who became rich during the privatization of state industries in the mid-1990s. He later formed a holding company, Media-MOST, which in 1994 formed the television station NTV. The station became known for its critical coverage of the war in Chechnya and of President Vladimir Putin.

Writing about the state of the Russian media for the Committee to Protect Journalists (CPJ) (, Robert Coalson described how the Putin government took control of Gusinskii's media empire in 2000: "In mid-May (2000), armed and masked tax police raided the offices of Media-MOST, the parent company of Russia's only non-state national television network, NTV. Officials claimed, improbably, that the raid had nothing to do with NTV's persistent criticisms of the Putin government.

"But the pressure on Media-MOST continued. On 13 June, Gusinskii was arrested on embezzlement charges, spending the next four days in Moscow's notorious Butyrskaya Prison. Although he was released after pledging not to leave the country, Gusinskii faced the possibility of ten years in prison.

"On 7 July, Deputy General Prosecutor Vladimir Kolmogorov sent an official letter to the Duma, claiming that Gusinskii's 'criminal activity, directed toward gaining control over federal property, has been proven by objective evidence, including the testimony of witnesses, documents, the conclusions of experts, and other materials relating to the case.'

"Less than three weeks later, on 27 July, Gusinskii fled the country for Spain after these 'proven' charges were inexplicably dropped."

NTV was subsequently taken over by the Russian state-controlled natural-gas monopoly Gazprom and quickly changed its editorial stance.

According to "The Moscow Times" on 26 August, "In April 2001, the Russian Prosecutor-General's Office tried to have Gusinskii extradited from Spain on embezzlement charges, but a Madrid court rejected the request on 18 April 2001. Two days later, the prosecutor's office charged Gusinskii with laundering 2.8 billion rubles ($97 million) and asked Interpol to issue an international arrest warrant. Interpol refused, saying the case had 'a predominantly political character.'"

According to "The Moscow Times" on 1 September, Gusinskii's lawyer, Alexandros Likourezos, said that his client was "ordered to be released on a 100,000 euro ($108,200) bail." "He will stay in an Athens hotel and is not allowed to leave the country," Likourezos said. A council of three appellate judges accepted an argument from Gusinskii's lawyers that the former media magnate was not a flight risk and could not look after his business interests from prison.

Gusinskii's arrest, by Greek, not Russian police, comes on the heels of the arrest on 2 July (by Russian police) of Platon Lebedev, the head of the Menatep bank, on charges of fraud. That arrest is part of the larger investigation into the oil major Yukos and its head, Mikhail Khodorkovskii. On 24 March, Boris Berezovskii, another self-exiled Russian oligarch, was arrested by the British authorities at the request of the Russian Prosecutor-General's Office on charges of fraud. Russia has asked the U.K. for Berezovskii's extradition to stand trial. RK

Speaking on Ekho Moskvy radio on 14 July, Russian President Vladimir Putin's economic advisor, Andrei Illarionov, accused Unified Energy Systems (EES), in which the Russian government holds a controlling stake, of "stealing" $750 million dollars from the state. Illarionov spoke mostly about the ongoing investigation into Yukos and the company's head, Mikhail Khodorkovskii. Illarionov was asked whether the case against Yukos was one of selective prosecution. The transcript of the following interview was recorded by the Federal News Service (

"What happened in the eyes of the public was the stealing of $750 million of government money under the so-called Czech debt deal. It happened not in 1994, but in 2001 in broad daylight. An obscure firm backed by RAO UES in fact diverted $750 million into its account. This is called stealing. And then $550 million out of that sum lands in the accounts of the company RAP UES which in this case acts as a private company...[T]he Prosecutor-General's Office passed no decisions on this and did not react in any way...The nation became $750 million poorer because it had that money stolen from it. But the Prosecutor-General's Office has done nothing about it."

The fable of the former Soviet debt to the Czech Republic and its supposed repayment was described at the time in "RFE/RL Crime, Corruption, and Terrorism Watch" (11 February 2002) in a special issue entitled "The Two Headed Falcon -- One Scenario." (

It involved Falcon Capital, an "obscure firm" as Illarionov called it, which was registered in the Czech Republic on 28 November 1995 by two ethnic Georgians, Paata Mamaladze and Vaza Kiknavelidze, along with Aristakes Alaverdian and a Czech national, Jozef Cimbura. One of them, Mamaladze, had earlier been linked to a shell company in Switzerland, which was suspected of dealing with bioweapons.

Initially the firm was located in a room rented to it by Dominican friars in Prague. According to news items at the time, Czech government officials claimed that Russian Prime Minister Mikhail Kasyanov insisted that the Czech government deal with Falcon Capital or there would be no deal. He also warned then-Czech Prime Minister Milos Zeman to keep the details of the agreement secret. The Czech press also alluded to possible involvement in the conspiracy by Russian Federal Security Service (FSB) agents.

In the complex twists and turns of the story, EES, headed by Anatolii Chubais, who was apparently aided and abetted by Kasyanov, allegedly turned over approximately $750 million to Falcon Capital, part of which was kicked back to EES. At that time, Falcon Capital agreed to transfer to EES the Russian debt it had purchased from the Czech government. The Russian government agreed in turn to write off $1.35 billion that EES owed to the Russian state in taxes. On 24 January 2002, EES Financial Director Dmitri Zhurba said, "What I understand was that EES took a loan from some commercial bank and bought the debt from Falcon."

When asked about the deal the same day, the first deputy head of the EES administration, Leonid Malamed, refused to answer the question of how much was paid to Falcon. "You will have to read it in the financial report, because I am bound by a confidentiality statement," he said.

After a brief spurt of newspaper reports and interviews in the press, the Falcon Capital case ceased to be news and was soon forgotten. The company allegedly prospered, bought a hotel in Prague and, according to some Czech press reports, was one of the corporate sponsors of the NATO summit in Prague in November 2002.

It is highly unlikely that Putin's government did not know the truth about this fable as it unfolded and then mysteriously disappeared. The fact that it was resurrected by an advisor to Putin in July, during the frenzy around Yukos, is probably no coincidence. Such charges, aired by a competent cadre in the administration on a popular radio station, do not just appear out of the blue in Russia.

One possible explanation is that the revelation was meant to damage Chubais, the overseer of privatization schemes in the 1990s. In August, Chubais announced his plans to run for the State Duma in December elections on the party list of the Union of Rightist Forces. Perhaps the revelation was meant to warn Chubais that the Falcon case could resurface, not just in the press, but on the desk of the prosecutor-general, and he could find himself in a situation similar to Khodorkovskii's. RK

According to an unconfirmed report on 27 August in the Azerbaijani online newspaper "Zerkalo" (, a new Armenian terrorist organization named Khaybun has been created. The group was allegedly founded on 12 May and has approximately 150 former Armenian members of the Kurdistan Workers' Party. The group, according to the website, has a base in Damascus, Syria. RK


By Taras Kuzio

On 28 August, Federal Security Service (FSB) director Nikolai Patrushev transferred overall command of the "antiterrorist operation" in Chechnya to the Interior Ministry (MVD). The reason, Patrushev said, was because the situation had considerably improved. The "counterterrorism operation" was renamed the "operation to protect law and constitutional order." This move to reclassify the Chechen conflict follows four other steps undertaken by President Vladimir Putin to present an appearance of "normalization" of the Chechen crisis.

Firstly, the Moscow-backed referendum on a new Chechen constitution in March which, as in Soviet tradition, obtained an 80 percent endorsement with a suspiciously high 96 percent turnout.

Secondly, presidential elections in Chechnya in October followed by parliamentary elections in December across Russia. The new Chechen parliament is to be bicameral with 21 deputies in the higher Council of the Republic and 40 deputies in the lower People's Assembly.

Thirdly, there have been persistent complaints domestically and internationally of Russian "death squads" at work inside Chechnya. Chechen administration head Akhmed-hadji Kadyrov has written to senior Russian security force officers requesting that an intergovernmental commission be established to investigate nightly abductions of Chechens. In the first half of this year alone, 267 Chechens were abducted. The Chechen branch of Unified Russia, Putin's "party of power," denied the existence of the "death squads."

To appease such complaints, the North Caucasus Military District Court in Rostov-on-Don gave a 10 year sentence in July to Colonel Yurii Budanov, who was convicted of raping and murdering an 18-year-old Chechen woman in March 2000.

On the other hand, the renamed "operation to protect law and constitutional order" is highly surprising. Continued activities by Chechen militants inside Chechnya, the neighboring republics of Daghestan and Ingushetia, and in Moscow, belie the official view that the antiterrorist operation is over. In August, 50 Russian soldiers died in a truck bomb in Mozdok in North Ossetia. Nine more soldiers were killed by a bomb in Grozny that same month and, in May, 17 soldiers were killed in a suicide bombing.

Female suicide bombers are a new and potentially more dangerous aspect of the conflict. These women have been described as "black widows" because they have lost male members of their families to Russian "counterterrorist operations." In Moscow in July, an FSB officer was killed attempting to defuse a bomb carried initially by a female Chechen suicide bomber. Another two suicide bombers killed 15 people at a rock concert that same month. In October 2002, 129 hostages and 41 Chechen militants died in a theatre siege in Moscow.

The recognition by the West that the Chechen militants are "terrorists" has been a central aim of Putin's after he allied with the U.S. after the 11 September 2001 terrorist attacks. A secondary aim for Putin was to convince the West that the Chechens were linked to Islamic terrorist groups.

On both counts Putin can be satisfied. In June, British Prime Minister Tony Blair said that during the short-lived war in Iraq "some of the people who were still offering resistance were extremists from Chechnya." Similar unsubstantiated claims were made in 2002 about Chechens allegedly fighting on the Taliban side in Afghanistan.

Professor Peter Reddaway of the London School of Economics wrote to "The Guardian" on 30 June challenging Blair to produce evidence for his claim for which "there is no known public evidence." In fact, Chechen President Aslan Maskhadov supported the U.S.-led coalition's intervention into Iraq. As Reddaway pointed out, Blair did not bring up the Chechen situation during Putin's state visit to the U.K. in late June. Later that same month, Chechnya was also not on the agenda at the EU-Russia summit in St. Petersburg.

The U.S., EU, Canada, Australia, and Central European states did back the draft 2003 UN human rights commission resolution critical of the situation in Chechnya. Meanwhile, CIS states, Ukraine included, opposed it by supporting Russian objections. The UN resolution eventually failed.

In February, the U.S. State Department added three Chechen groups to the federal list of terrorist groups. This is the first occasion when the U.S. has labeled Chechen groups as "terrorist." State Department spokesman Richard Boucher said that the three designated Chechen groups had "training and money links" to the Al-Qaeda terrorist network.

A U.S. State Department press release later explained that the U.S. does not "consider all Chechen fighters to be terrorists." Maskhadov is not on the list of Chechen "terrorists" as he has never supported the use of violence for political ends against civilians, unlike Shamil Basaev whose organization was designated as "terrorist."

Another problem for the U.S. is how to define actions by Russian security forces in Chechnya. Christopher Swift, program director at the Washington-based American Committee for Peace in Chechnya and a former aide to national security adviser Zbigniew Brzezinski, points out that many of the same kinds of actions undertaken by Basaev are also routinely undertaken by Russian forces in Chechnya. Beatings, murders, rapes, theft, and the removal of children and teenagers by "death squads" in order to politically intimidate the remaining population are also consistent with the U.S. definition of "terrorism," Swift argues. The same argument was used by military analyst Pavel Felgenhauer in "The Moscow Times" on 7 August. He wrote that he saw little difference between the "inhumane war" fought by both sides.

The sheer scale of the numbers killed in the Chechen conflict dwarfs other more genuine "terrorist" campaigns in Western Europe, making it more difficult to qualify the conflict solely as a case of "terrorism." In Northern Ireland during the "troubles," 666 British servicemen were killed and 6,465 wounded. Three hundred Royal Ulster Constabulary officers were also murdered, bringing the total number of dead to nearly 1,000.

In Chechnya in the 1994-1996 conflict, 14,000 members of the Russian security forces are said to have died by the Committee of Soldiers' Mothers, far more than the official 5,500 dead and 700 missing. (This is higher than the 10-year conflict in Afghanistan where officially 13,000 Soviet soldiers died and 35,000 were wounded.) Soldiers' Mothers estimate that since the conflict resumed in 1999, over 11,000 Russian security force personnel have been killed and 30,000 wounded. This is again far higher than the official 4,572 dead and 15,549 wounded.

Dr. Taras Kuzio is a resident fellow at the Center for Russian and East European Studies, University of Toronto.