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Corruption Watch: September 19, 2003

19 September 2003, Volume 3, Number 33
The United States District Court for southern New York handed down an indictment earlier this month against Swiss banker Hans Bodmer, who was accused of paying millions of dollars in bribes to four (unnamed in the indictment) senior Azerbaijani officials in conjunction with the privatization of the Azerbaijani state oil company SOCAR. Writing about the case, the "Financial Times" on 15 September reported that the Azerbaijani embassy in Washington had denied that President Heidar Aliyev or his son, Ilham, who is the prime minister, were in any way involved in the matter.

The "Financial Times" states that while none of the persons taking bribes were named, "one was referred to by prosecutors as 'a senior Azeri official' who was 'the ultimate decision maker with all respect to all significant aspects of privatization'. Another was identified as a 'senior Socar official'. Those figures were [Aliev] and his son Ilham, who was the former Socar head, according to several people familiar with the investigation."

According to "Eurasia View" on 12 September "the two-count indictment against Hans Bodmer -- described as 'a Swiss citizen and a lawyer with the Swiss law firm von Meiss Blum & Partners' -- says he acted as an agent of a 'domestic concern' as defined by the U.S. Foreign Corrupt Practices Act [FCPA]. In that capacity, he allegedly conspired to facilitate the participation of foreign entities in Azerbaijan's privatization process through improper payments made to Azerbaijani officials."

Among the Western entities named in the indictment are the investment banking firms Oily Rock Group and Minaret Group, both registered in the British Virgin Islands. Other entities allegedly represented by Bodmer in Azerbaijani dealings and named in the indictment are Omega Advisers Inc. and Pharos Capital Management, both of which had their "principal place of business in New York." Nothing further is known about the nature of the above companies. RK

Ukrainian Prosecutor-General Sviatoslav Piskun, announced on 6 September that his office had issued arrest warrants for the persons suspected in the killing of internet journalist Heorhiy Gongadze in September 2000 and were actively searching for these suspects, according to Ukrainian media reports. But Piskun refused to release the names of the suspects "in the interest of the investigation." When RFE/RL asked Interpol if they had received a request from the Ukrainian branch of Interpol to place such unnamed suspects on an alert list, Interpol officials stated they had not received any such request. Apparently Piskun believes the suspects are in Ukraine and do not plan to leave the country.

Responding to this revelation, the head of the Ukrainian parliamentary committee investigating the murder of Gongadze, Heorhiy Omelchenko, told the newspaper "Lvivska Pravda" on 11 September that he knew the names of the suspected killers (which he did not reveal) from letters written by a former militiaman turned gangster, Ihor Honcharov. Honcharov died in police custody on 1 August 2003 and was buried by the MVD without an autopsy being performed. Omelchenko repeated the charge that Leonid Kuchma, president of Ukraine; Yuriy Kravchenko, the former head of the MVD; and his replacement, Yuriy Smirnov; were responsible for the murder of Gongadze.

Gongadze, who often wrote about high-level corruption in Ukraine, disappeared in Kyiv on the evening of 16 September 2000 as he left the building in which Olena Prytula, a co-worker of his at the "Ukrayinska Pravda" Internet publication, lived. His body was discovered in a forest outside of Kyiv on 2 November 2000 in a shallow grave, decapitated and highly decomposed. Later that month, a leading member of the parliamentary opposition, Oleksandr Moroz, announced that he had in his possession tape recordings covertly made in Kuchma's office in which the president and the heads of the Ministry of Interior and the Security Service are heard discussing ways to silence Gongadze.

Kuchma denied that he had ever discussed Gongadze and claimed that the recordings were fakes. In 2002, the audio laboratory of the FBI conducted an authentication of a segment of the tapes dealing with a conversation in Kuchma's office about covertly selling Iraq a sophisticated radar system. The FBI announced that this particular segment was authentic and had not been tampered with. BEK TEK, a nongovernmental Virginia-based audio laboratory, reached the same conclusion earlier.

Oleksandr Piskun that same day announced that the so-called "Melnychenko tapes" (named after the former member of Kuchma's security detail, Major Mykola Melnychenko, who says he recorded the conversations in Kuchma's office) were fakes and that his office had conducted three authentications of these recordings and found them to be fake in each case. Earlier, members of parliament who had been recorded in Kuchma's office publicly stated that after listening to the recordings they found them to be accurate and not edited or tampered with in any way.

Piskun also stated that his office would soon be conducting yet another test, "the best and most comprehensive ever conducted," an extensive examination of the recordings based on the testimony of experts in the fields of linguistics, psychology, and audio recordings. This, he claimed, would soothe any doubts that the recordings were real. Melnychenko, Piskun added, had been charged by his office with divulging state secrets. (For more on the Gongadze case see the "End Note" in this issue). RK

ChevronTexaco Corporation was subpoenaed by the U.S. Justice Department in an ongoing probe of alleged bribery schemes in oil deals in Kazakhstan, "The Wall Street Journal" reported on 12 September.

Earlier, a former executive of Mobil Corp., J. Bryan Williams, pleaded guilty on tax evasion charges. He had received a $2 million kickback for negotiating Mobil's $1.05 billion purchase of a stake in a Kazakh oil field and did not pay taxes on the payment.

The chairman of a New pork Private investment bank, James H. Giffen, who also acted as the representative of Kazakh President Nursultan Nazarbaev, was also indicted by a federal court in New York for arranging bribes to high-level Kazakh officials. RK

Juergen Roth's new book, "Die Gangster aus dem Osten (Gangsters From the East)," (Evropa Verlag, Berlin-Vienna, 2003) is not for the politically faint at heart or those who seriously believe that Russian President Vladimir Putin is fighting crime in Russia.

Crime rates rise unabated, drug trafficking is at an alltime high, official corruption is eating away at the infrastructure of the state, and contract killings have ceased being a media event. Russia has become the new, giant version of Sicily, with the added dilemma that the West has to deal with its leaders.

The most important chapter of Roth's book deals with a topic which is taboo in Russia, the so-called "SPAG affair." The question of whether Putin was involved and, if he was, how much he knew or abetted the company in its dealings is explored in the book, and Roth does an excellent job of looking at this issue.

St. Petersburg in the early 1990s was Palermo squared. Crime gangs controlled the city, its businesses, and the local government. No business deal could be made without the approval of a "krisha," a Russian underworld name for a protector, literally meaning "a roof." If you did not have a roof you could not do business in the northern capital of Russia -- be it a small street kiosk selling scotch whiskey made in Beirut or sardines from Lithuania. The same rules applied to large businesses, department stores, and real-estate companies. One could try to go on his own without a krisha and those who did soon ended up dead.

It was then that a German company established a joint venture in St. Petersburg which came to be known as SPAG. Reports of Putin's alleged involvement with SPAG surfaced as far back as May 2000 when the French daily "Le Monde" reprinted an article about his alleged involvement from a Russian website. Writing about this, United Press International on 31 May 2000 reported the following:

"'Le Monde' said that Putin and Economic Strategy Minister German Gref both had a hazy 'adviser' status until March of this year with the St. Petersburg-based Immobilien und Beteiligungs AG, or SPAG, a German company founded in 1992 in a collaboration with St. Petersburg's City Hall.

"Rudolf Ritter, one of SPAG's founders, was arrested in Vaduz, Liechtenstein, May 13 on charges of money laundering and connections with organized crime. 'Le Monde' said that a report last year by the German secret service BND alleged Russian criminal groups had transferred money to SPAG via a Romanian bank to buy real estate in Russia.

"In response to an inquiry from 'Le Monde', the Putin administration denied that Putin had ever worked for SPAG: 'The president has never worked there as a consultant. He has never received any salary there,' 'Le Monde' quoted the president's press service as saying."

However, recent raids by the German police on 28 companies in Germany suspected of money laundering have renewed interest in this case. According to German prosecutors, millions of euros were laundered through the efforts of SPAG in St. Petersburg. Writing about this continuing scandal, "The Moscow Times" on 19 May wrote that the Hessen, Germany-based company SPAG was among 28 firms and homes raided by police in Hessen, Hamburg, and Munich in May.

"The companies are suspected of laundering 'tens of millions of euros' for 'one of the biggest and most powerful' Russian organized-crime groups," German prosecutors said in a statement.

"Prosecutors believe the crime group is based in St. Petersburg and involved in 'numerous crimes, including vehicle smuggling, human trafficking, alcohol smuggling, extortion and confidence racketeering,' the statement said. No arrests have been made."

Roth offers new evidence purportedly showing Putin's involvement in the SPAG affair. Among others, he quotes recordings made in the offices of Ukrainian President Leonid Kuchma in which he and his chief of the security service, Leonid Derkach, are heard discussing documents Derkach had gotten possession of about the affair. He also shows how suspected money laundering for Colombian drug deals allegedly went through SPAG and charts the elaborate series of shell companies and banks involved in these deals.

Roth writes about the alleged role of a local St. Petersburg mafia chieftain, Vladimir Kumarin, in the SPAG affair. According to Roth, Kumarin is presently doing everything in his power to stop distribution of the book and denies ever having been in the Tambovska organized-crime gang or of having any links to SPAG.

"Gangsters from the East" is an important book -- not only for law-enforcement officials and gangster camp followers -- it is a book which businessmen in the West should read to better understand the investment climate and working conditions in Putin's Russia. It is unfortunate that the only edition available is in German. RK


By Taras Kuzio

Since the murder of opposition journalist Heorhiy Gongadze in fall 2000 the Ukrainian authorities have been incompetent in their handling of this case or have been unable to resolve it (or a mixture of the two). This is surprising because of the degree to which the Gongadze case has negatively affected both President Leonid Kuchma and Ukraine's domestic and international standing.

From November 2000 to April 2002, one factor why the Gongadze case was not resolved was the role of then Prosecutor Mykhailo Potebenko, who shielded Kuchma from accusations that he was directly involved in the crime. Potebenko, his staff, his successor Sviatoslav Piskun, as well as Ministry of Interior (MVS) chief Yuriy Smirnov have all arrived at contradictory and often bizarre explanations for Gongadze's murder.

Yet, there are four facts that have been known for a long time which have been again authenticated by MVS sources. Firstly, it has now been admitted by the authorities that Gongadze was being followed prior to his death by the MVS. According to the 9-15 August edition of the respected weekly "Zerkalo nedeli" the documents pertaining to this were subsequently destroyed after the removal of MVS chief Yuriy Kravchenko in February 2001.

Second, Kuchma was allegedly recorded by security guard Mykola Melnychenko as demanding that Gongadze be dealt with. Present at the meeting were then-presidential administration head Volodymyr Lytvyn (now parliamentary speaker), Kravchenko, and Security Service chairman Leonid Derkach. The recording shows that Kuchma ordered Gongadze to be beaten up (but not murdered). Many other journalists have testified since then that they were also beaten by the MVS and warned to halt their critical reporting. In the Gongadze case, we can only assume that something went wrong when he was beaten up, leading to his death (i.e. manslaughter). Ihor Honcharov, an officer in an MVS special forces' unit that was involved in political and criminal kidnappings, testified that, "These crimes were perpetrated on the direct instruction of the Ministry of Interior," and later "The highest officials of the state knew about these kidnappings and murders and were associated with them" ("Zerkalo nedeli," 9-15 August).

Third, the units responsible were from the special forces of the MVS Directorate to Combat Organized Crime (UBOZ). The UBOZ has units called "Sokil" (Falcon) who have also been nicknamed "Werewolves." Kravchenko bragged at the meeting recorded by Melnychenko that he had vicious units who would do anything he ordered. It was officially admitted in 2000 by the Prosecutor's Office that Sokil members did not combat organized crime but worked alongside them or terrorized them for protection money. And, the Kyiv daily "Segodnya" on 1 August 2002, followed by "ITAR-TASS" on 8 August, reported that the Prosecutor's Office had arrested Sokil members who had cooperated with organized crime (see "End Note," "RFE/RL Newsline," 22 August 2002).

Fourth, a leading member of a "Sokil" unit, Honcharov, was one of a number of people arrested in May 2002. After their arrests, Sokil members leaked information anonymously to the opposition socialist on 17 February 2002 that dealt with the involvement of their colleagues in the Gongadze murder. Prosecutor Piskun admitted in an interview in the same month in "Zerkalo Nedeli" that their involvement was one of the three theories being investigated. Honcharov compiled further evidence of the involvement of Sokil in the murder of Gongadze, which was released after Honcharov's mysterious death.

After being arrested, Honcharov claimed in statements published by the "Ukrayinska Pravda" website on 6 August and 10 September that he was ordered not to testify against other officers and claimed he had been tortured and beaten in prison, which is thought by many to have led to his death on 1 August. Honcharov was the second Sokil member to have died recently in prison, which conveniently removed two potential witnesses in any future court case. Suspiciously, Honcharov was quickly cremated two days after his death.

Honcharov was not a pleasant person. He was himself accused of eight murders and, as "Zerkalo Nedeli" points out, he was "in the epicentre of the criminal group of militia officers." Nevertheless, MVS officers implicated by Honcharov, such as Serhiy Chamula, the former head of Kyiv's UBOZ, continue to work in other UBOZ field offices.

After his death, Honcharov's documents and testimony were sent to a Kyiv nongovernmental organization, the Institute for Mass Information, which represents Reporters Without Frontiers. At first, the Prosecutor's Office denied their authenticity and Deputy Prosecutor Oleksandr Medvedko said the papers revealed nothing new about Gongadze. Honcharov had complained about political pressure from the Prosecutor's Office. A month later, Prosecutor Piskun changed his tune and admitted in an interview in the "2000" newspaper that the Honcharov papers are genuine and contain new facts in the Gongadze investigation.

Incredibly, at the same time, Deputy Prosecutor Viktor Shokin continued to claim that "Melnychenko does not know anything [about the Gongadze affair]." Adding Melnychenko's tapes to testimony by MVS officers would be presumably too dangerous for the authorities.

These new revelations may shed light on other political murders in Ukraine.

These include former National Bank Chairman Vadym Hetman, who offered to finance Viktor Yushchenko's 1999 presidential campaign (he declined, in the end, to stand), and Viacheslav Chornovil, the former leader of Rukh, who died in a suspicious car accident. Hetman, Chornovil, and former Prime Minister Pavlo Lazarenko were the three main individuals blocking a potential reelection of Kuchma in 1999 for a second term. Only Lazarenko escaped by fleeing to the U.S., where he is soon to go on trial for money laundering. A car carrying Vladimir Efremov, a newspaper and television editor, collided with a KAMAZ truck on 14 July and killed the journalist. The accident occurred just a month before Efremov was due to give testimony in the U.S. in the Lazarenko case. KAMAZ trucks have featured regularly in such "accidents."

The Chornovil case is particularly intriguing. "Ukrayinska Pravda" reported on 25 January 2001 that after Chornovil's car accident in March 1999 special forces MVS officers, who may have also been from a Sokil unit, provided video of an interview in which they admit organizing Chornovil's "accident." Omelchenko said the video was given to then-opposition presidential candidate Yevhen Marchuk, "Ukrayinska Pravda" reported on 11 December 2000.

But Marchuk was co-opted by Kuchma in the second round and he then claimed he lost the video, the "Kyiv Post" reported on 26 January 2001. After four years as secretary of the National Security and Defense Council, Marchuk was named defense minister in May. On 10 September, "Ukrayinska Pravda" reported that the head of the parliamentary commission investigating the Gongadze murder, Heorhiy Omelchenko, as linking the initials "YKM" (which are Marchuk's initials) to Honcharov's papers, as someone to whom details of the Gongadze affair were passed.

The issue of political murders, including that of Gongadze, will not go away. The Gongadze Commission in parliament has concluded that Kuchma and Kravchenko are the "organizers of the abduction of Heorhiy Gongadze which led to the tragic result of his murder."

The fear of being out of power after the October 2004 election is fueling various machinations surrounding "political reform" initiated by Kuchma. One central issue is that of Kuchma's immunity when he is out of office. While high-level corruption, election rigging, and even illegal arms sales may be quietly forgotten, the issue of involvement in violence and murder will continue to haunt Kuchma after he leaves office. As recent examples have shown in Peru, Argentina, and Chile, immunity is never forever.

Dr. Taras Kuzio is a resident fellow at the Centre for Russian and East European Studies and adjunct professor, Department of Political Science, University of Toronto.