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Corruption Watch: September 12, 2003

12 September 2003, Volume 3, Number 32
A car bomb smuggled into the central police compound in Baghdad exploded on the morning of 2 September, killing one officer and wounding 26 others. Police chief Ali Hassam al-Obeidi was not in his office, which is located close to where the explosion was. It was the fourth car bomb attack in Iraq in a month.

According to "The New York Times" of 3 September, the explosion "reinforced a common perception that American troops and the Iraqi police cannot protect either themselves or the public against the insurgents disrupting the country's reconstruction." The "Los Angeles Times" that same day wrote: "The symbolism was unmistakable: The bombers hit at Iraqis who are collaborating with the American occupation force in precisely the area of most urgent concern to Iraqis: security."

Security officials noted that the driver of the bomb-laden car needed to have proper police identification to enter the compound, which suggests that there might have been a collaborator working with the terrorists inside the headquarters.

Iraqi policemen complained to the "Los Angeles Times" that the "U.S. Army turned security of the police headquarters over to Iraqi forces three weeks ago...but failed to provide the weapons needed to guard it." RK

Two bombs planted on the tracks exploded under a crowded commuter train in the southern Stavropol region on 3 September, killing at least five people and injuring dozens of others in the latest deadly attack in areas surrounding Chechnya, officials said. Dmitrii Oliferenko, a spokesman for President Vladimir Putin's envoy to southern Russia, confirmed that five people died from the blasts. The train was en route from Kislovodsk to Mineralniye Vody when the bombing occurred, "The Moscow Times" reported on 4 September.

A series of bombings in and around Chechnya and in Moscow has killed more than 150 people since May. NTV television reported that the dead were an 18-year-old woman, two 21-year-old men, and a 15-year-old boy. RK

A member of Russia's Yabloko party, state Duma member Aleksei Melnikov, sent a letter on 28 August to the Prosecutor-General's Office asking that it revive a criminal investigation of Alfred Kokh, "Vedomosti" reported on 1 September. The charge claims that Kokh, who was responsible in 1995 for running the "loans for shares" privatization, sold Norilsk Nickel to Vladimir Potanin's Oneksimbank for $140 million below the original asking price. The case was investigated in 1999 but was later dropped.

The "loans for shares" auction was originally conceived by Boris Jordan, the American banker of Russian descent (who eventually became the head of Gazprom-owned NTV and was fired in 2002), and was first used by Potanin, who is the one that turned the old Soviet Vneshtorgbank into Oneksimbank. In his article "The Russian Devolution" in "The "New York Times Magazine" on 15 August 1999, John Lloyd claims that Potanin, on the advice of Jordan, gained managerial control over Norilsk Nickel, the largest nickel producer in the world, by convincing the state to give him the right to manage Norilsk. In return, he would grant the state a large loan. The idea appealed to the right people in the government and a deal was done; Potanin took over managerial control of Norilsk. Later, as a result of the "loans for shares" auctions that Potanin organized and Kokh ran, Potanin became the lawful owner of the company.

Potanin's new "loans for shares" scheme was a variation on the earlier Norilsk deal. The Russian government would borrow money from Russian banks and as collateral offer shares in the best state-owned enterprises (primarily in the energy and natural resource sectors). This money would ostensibly be used to wage the war in Chechnya and to replenish the treasury, which at that time was broke.

If the government could not repay the loans, the banks would then have the right to auction these shares. The loans themselves were heavily "over-collateralized" and a default would mean that the banks would reap a huge profit. The deal was agreed upon at a cabinet meeting in March 1995.

In a study by the Federation of American Scientists ( about this auction, the authors found that: "When the shares pledged [by the government] as collateral were eventually sold after the government failed to repay the loans they secured, the winning bid was almost invariably submitted by an affiliate of the bank managing the auction -- and typically exceeded the minimum bid by only a nominal amount. Thus the "loans for shares" program essentially offered a select group of Russian bankers an opportunity to acquire cut-rate shares in prized state enterprises.

"In the end, shares in 12 companies described as 'the crown jewels of Soviet industry' were sold off. The firms included not only Norilsk Nickel, but also the massive oil companies Sibneft, Yukos, Sidanko and other key enterprises. Controlling stakes in Sibneft and Sidanko, each of which produced oil worth $3 billion per year, were acquired for $100.3 million and $130 million, respectively. Ten percent of Sidanko was later sold to British Petroleum for $571 million. Yukos, one of the largest oil companies in the world, produced more oil than Sibneft and Sidanko combined, yet control of the firm cost a Russian bank only $159 million."

The demand to reopen the investigation of Kokh by Melnikov was rescinded soon afterwards. The deputy told "Vedomosti" in a letter that, after reading an editorial in the paper on 29 August, he changed his mind. In the editorial it was stated that Yabloko leader Grigorii Yavlinskii had voiced concern about the investment climate in Russia after the arrest of Yukos co-owner Platon Lebedev in July.

Writing on this topic in the "Financial Times" on 3 September, Yavlinskii put forth a proposal that "It might also be useful to limit the rights of those who played a leading role in the mid-1990s privatizations �- both businessmen and politicians -- to participate in political life. A period of, say, 10 years from the enactment of the law might suffice."

An additional dimension to this affair came in the form of new revelations published by "Novaya gazeta" on 25 August which accused Kokh of having received a $6.5 million expense account at Oneksimbank on 1 September 1997, a month after the bank gained full ownership of Norilsk Nickel. RK

The announcement on 29 August that British Petroleum will pay an additional $1.35 billion to include one-fourth of the oil company Slavneft into the fold of the newly formed BP-Tyumen Oil Company (TNK) in Russia raised red flags across the globe. Slavneft had been privatized in December 2002 by TNK, owned by Alfa Group in league with Sibneft, which belongs to Roman Abramovich and is about to merge with Yukos.

The auction at which Slavneft was sold to Sibneft-TNK for $1.86 billion led to whispers that the hall reeked of the 1995 "loans for shares" deal throughout the proceeding. Conspicuously missing were other bidders who prior to the auction stated that they were willing to pay much more for Slavneft. These included the Chinese National Petroleum Company which, according to an article in "The Washington Post" on 25 January 2003, was willing to pay more than $4 billion. A fair price for Slavneft, experts claim, would have been $2.5 billion. The Chinese withdrew their bid the day before the auction after their chief executive officer spent several hours talking with top Russian economic authorities.

Another Russian bidder, Rosneft, was prohibited from participating in the auction and its president, Sergei Bogdanchikov, announced at a 25 December 2002 press conference that the state-owned company is readying a lawsuit against the Russian Federal Property Fund. Rosneft, Bogdanchikov claimed, was willing to buy Slavneft for $3.1 billion and had created a special company, Promproekt, in order to circumvent the ban on participation by state-owned companies in privatization auctions. RK

Ivan Havdyda, a member of the Ternopil Oblast council, was found dead near his apartment in Kyiv. According to Interfax Ukraine, he was killed by blows to the head during the night of 29 August. Havdyda was the Ternopil head of the opposition party, "Our Ukraine" led by Viktor Yushchenko, and had accompanied Yushchenko to the Ternopil region on 28 August for a regional forum of democratic groups. "Our Ukraine" sent a letter to Prosecutor-General Svyatoslav Piskun asking that the apparent murder be investigated. RK

Volodymyr Radchenko, the head of the Ukrainian Security Service (SBU), was transferred to become the head of the National Security and Defense Council by a decree signed by President Leonid Kuchma on 2 September, according to ( This position was recently vacated when its head, Yevhen Marchuk, was named defense minister.

Radchenko was born in 1948 in Kyiv, and graduated from the Kyiv Technological Institute of Light Industry in 1971 with a degree in industrial chemistry. After graduation he joined the KGB. From September 1971 to September 1972 Radchenko attended the higher KGB school and was assigned to counterintelligence (Special Service II). From 1995 to 1998 he headed the SBU. In 1998 he was replaced by Leonid Derkach, who held this post till 2001, when Radchenko once again was named to head the service.

Ukrainian media announced on 6 September that Kuchma had appointed Ihor Smeshko the new head of the Ukrainian Security Service (SBU).

General Lieutenant Ihor Smeshko was born on 17 August 1955 in the Cherkassy region of Ukraine and made his career in military intelligence. From 1992 till July 1995 he was the military attache at the Ukrainian Embassy in Washington. From June 1997 to September 2000 he headed the Main Intelligence Directorate of the Ministry of Defense. From September 2000 to October 2001 he was the military attache in Switzerland and in November 2002 was assigned to the National Security and Defense Council where he became first deputy head in June 2003. Smeshko last visited the United States in the summer of 2003. RK


By Roman Kupchinsky

Agroterrorism and its related partner, bioterrorism, are two potential weapons in the terrorists' arsenal which few want to discuss in public.

Some analysts claim that since agroterrorism does not kill people but just plants or animals, it is not a priority item in the war against terrorism. Others point out that this might be so, but a concentrated attack on the food supply of a country could have serious consequences: a disruption of the economy, panic buying, street riots, unemployment, and the associated political fallout. Above all, a country could be blackmailed and bow to the demands of the group employing such tactics.

The fact is there are pathogens -- a specific causative agent (such as a bacterium or virus) of disease -- capable of destroying substantial portions of a certain crop in many countries. These pathogens could even be stolen from laboratories in Russia or in the United States and, if used by terrorists or criminals, the effects could be disastrous.

In 1999, Ken Alibek, a Russian scientist acquainted with biological warfare work done by Soviet scientists, sent a tremor throughout the West. In his book "Biohazard" he described the Soviet anticrop program which researched pathogens designed to attack wheat, corn, rye, and rice. In the book, Alibek said that Russia still maintains these pathogens in its arsenal.

Writing in the September/October 2001 issue of the "Bulletin of Atomic Scientists," Gavin Cameron, Jason Pate, and Kathleen M. Vogel recalled in their article "Planting Fear -- How Real is the Threat of Agricultural Terrorism?" that: "In 1974 the 'Revolutionary Command,' a radical Palestinian group, claimed to have contaminated grapefruit exported from Israel to Italy; in 1978 another Palestinian outfit, the 'Arab Revolutionary Council,' targeted Israeli citrus fruit, using liquid mercury as an agent; and in 1988, Israeli grapefruit exports were again threatened with contamination. In 1999 and 2000, Israeli eggs sold domestically were contaminated with salmonella. In this incident, two people died and many others were sickened. Although people had been injured in the earlier attacks on Israeli goods, economic disruption seemed to be the primary goal."

The article goes on to say: "During [...World War II], the United States, Britain, and Canada coordinated their efforts to produce anthrax bacteria for use against German cattle. The British researched foot-and-mouth disease virus, fowl plague bacteria, and pathogens lethal to sugar beets. The United States developed a viral agent to be used against the Japanese rice crop, conducted research into diseases such as the avian Newcastle, rinderpest, and fowl plague, and pathogens directed against rice, potatoes, and wheat. None of these agents were used during the war."

In a paper prepared by Rand Corporation analyst Peter Chak in 2000, "The Threat Beyond 2000" (, the author attributes this low level of awareness to bioterrorism in part to the following: "Bio-warfare against agriculture has received extremely short shrift. In large part, this is a product of a mindset in the industrialized West that has traditionally downplayed the importance of the rural sector in general. In countries such as the US, Canada, the UK and Australia, where agriculture accounts for approximately only two percent of the working population, food tends to be equated with supermarkets and the local grocery store, not farms, and is always in bountiful supply."

Chak also examines what chaos a natural bio-attack is capable of: "In March 1999, a new strain of the Hendra Encephalitis (HE) virus hit the Malaysian state of Negri Sembilan, decimating the region's pig population. The epidemic forced health authorities to cull in excess of 800,000 pigs, with officials vaccinating another 500,000 in an attempt to control the spread of the disease. The outbreak cost the Government over $12 million in eradication expenses, was directly responsible for plummeting pork prices, threatened social stability, led to over a hundred human deaths and undermined confidence in the Government."

Two years later the outbreak of mad-cow disease in Great Britain and other European countries created even greater financial losses and some loss of life. And while this was not an act of terror, the outbreak showed the real danger that such an attack could trigger.

The world's vast expanses of unguarded farmland, rice paddies, orchards, and grazing fields are the soft underbelly that sooner or later might come to the attention of terrorists who feel that an attack on such a target is both relatively easy and will bring the desired result.

The response to this threat is slowly being formulated. On 10 February, "USA Today" reported that, "Federal government leaders, including 18 members of Congress, are set to take part in a demonstrate what might happen if a terrorist attack were aimed not at humans, but at U.S. agriculture.

"The simulation, called Silent Prairie, taking place here at the National Defense University, Fort McNair, will show how quickly and devastatingly an outbreak of foot-and-mouth disease -- the highly contagious virus that affects cattle, pigs and other cloven-hoofed animals -- could spread from state to state."

"USA Today" quotes Thomas McGinn, assistant state veterinarian with the North Carolina Department of Agriculture, who said: "No matter where it began, an outbreak would not be a 'local event,' thousands of animals are transported across state lines every day, any kind of foreign animal disease, if it took only five days to detect, would be all over the country."

The Rand study points out that "weaponizing" biological agents to destroy farm animals is easier than creating munitions designed to kill hundreds of people.

It continues: "Viral or bacterial warfare against human beings requires at least a limited knowledge of microbiology. However, this is not the case with livestock-disease delivery which is, by comparison, relatively low tech. Over the years, farm animals have become progressively more disease-prone as a result of intensive antibiotic/steroid programs and husbandry changes designed to elevate the volume, quality, and value of meat production as well as meet the specific requirements of potential vendors."

The ease with which infections spread among livestock is an important factor since most cattle are not vaccinated against viruses which are considered to have been eradicated.

As the author of the Rand study writes: "In the US alone, it would not be uncommon to find livestock feedlots containing between 5,000 and 10,000 animals at any given time. The outbreak of a contagious disease at one of these facilities would be extremely difficult to control and could easily necessitate the wholesale destruction of all the animals."