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Corruption Watch: January 17, 2002

17 January 2002, Volume 2, Number 2

The final installment of the five-part "Tractor Driver Of The State" will appear in the next edition of "RFE/RL Crime, Corruption, And Terrorism Watch."
Bush administration officials say they believe elements of the Iranian government were involved in an attempt to smuggle 50 tons of weapons to the Palestinian Authority, "The Wall Street Journal" reported on 11 January.

But U.S. intelligence still is assessing whether the operation was approved by top Iranian officials -- as Israel contends -- or was conducted by the Islamic Revolution Guards Corps, the militants who often run their own operations independent of President Mohammad Khatami, but answer to him.

The extent of Iranian involvement in the arms operations is an important issue for the Bush administration, which has been looking for signs of improved cooperation by Tehran in fighting terrorism since the 11 September attacks in the U.S.

Israeli commandos on 3 January intercepted a ship in the Red Sea laden with Iranian-made rockets, mortars, and other arms. The vessel had been loaded on 11 December at Iran's Kish Island.

A senior Israeli security official said his government gave the Bush administration evidence that "all parts of the Iranian government" knew about the operation. If the Bush administration accepts that view, it could lead to pressure for tougher U.S. measures against Iran.

Israel also said Imad Mugniyah, a senior member of the Iranian-backed Hizballah, a Lebanese terrorist group, was involved in the arms deal. Mugniyah has been wanted by the U.S. since he was implicated in the 1983 bombing of U.S. Marines barracks in Lebanon and several other attacks in which Americans were killed. A U.S. list of "Most Wanted Terrorists" issued by President Bush after 11 September included Mugniyah, who reportedly spent years under military protection in Iran.

A senior U.S. official said Mugniyah is believed to be in Lebanon, and the U.S. is investigating his role in the weapons-smuggling operation. U.S. intelligence believes Iranian officials forced him to depart last year, worried his presence could harm warming relations with the U.S.

Iranian Defense Minister Admiral Ali Shamkhani rejected recent Israeli claims that his country intercepted a ship carrying Iranian arms for Palestinian fighters, the "Tehran Times" reported on 14 January. "This claim is like a play, orchestrated by the racist Israeli regime, which lacks documentation," he said, adding, "Iran has played no role in this drama."

Shamkhani made the remarks at the inauguration ceremony of the Third National Conference of Marine Industries. "The Islamic Republic of Iran has had no military relations with Palestinian head Yasser Arafat, and no steps have been taken by any Iranian organization for the shipment of arms to the mentioned lands," Shamkhani added.

The problem of widespread corruption in Latvia was recently raised in a report by the European Union and reported on by the newspaper "Helsingin Sanomat" on 8 January. Following are excerpts from that newspaper article:

"In its fresh country report, the European Union calls on Latvia to bring its corruption problem under control. Experts differ on whether or not the problem is worse there than in the other Baltic states, but many top businesspeople feel that they are hurt by corruption. According to the World Bank, an average 1.4 percent of companies' turnover in Latvia is spent on bribes. In Estonia the figure is 1.6 percent, and in Lithuania it is 2.8 percent.

"'I don't see any light at the end of the tunnel,' sighs a high-ranking Western diplomat, whose mission in Riga includes monitoring the fight against corruption. Corruption, bribery, and various types of illegal financial dealings are everyday topics of discussion and something of an open secret. According to studies, the Latvians' confidence in their police, customs, courts, tax authorities, and the privatization office are virtually zero. Latvia ranks number 59 on a list compiled by the global anticorruption organization Transparency International...

"EU expert David Wallis returned home in December somewhat disappointed after working in Latvia for two years. He was part of the first EU experiment of its kind in a country that has applied for EU membership. Wallis had previously taken part in anticorruption work for the British police in Hong Kong. Wallis recently had a private meeting with 25 Finnish businessmen. He also managed to anger Latvian officials by criticizing the government's measures as insufficient and by speculating that the problem might make it more difficult for Latvia to join the EU and NATO. Wallis found it difficult to get appointments with top officials, and many of his recommendations were ignored. He did meet with the prime minister before leaving the country.

"Experts are quite satisfied with the Latvian president; but in their view, the president's aides shield her from unpleasant facts. 'Fighting corruption requires political will and the commitment of the government,' Wallis says. He recommended the establishment of a single strong, independent institute. Latvia now has dozens of bodies that all deal with the prevention of corruption. It is difficult for citizens to know to whom they should turn. The government has started a new anticorruption campaign, and in May it is to set up an investigative body if parliament passes the motion. Foreign experts are not convinced by the initiative. [Collins said:] 'Why so late, just before the elections? And why is the body to be made subordinate to three ministries? This is the wrong way, and it is not credible.' Inese Voika is satisfied with small steps, noting that the Latvian Constitution will not allow the establishment of a completely independent body.

"There has also been some concrete action: the minister of Finance had webcams installed in the ministry's offices, allowing anyone with Internet access to see what is going on there.

"Newspapers often uncover scandals, but the revelations rarely lead to charges being filed. 'Most cases in my time stopped at the office of the head prosecutor,' says an American expert who used to serve in Latvia.

"The prosecutor would respond to inquiries [by] saying, 'The state has not suffered any monetary harm,' or, 'The person in question is no longer in office, and the case is therefore obsolete.' The present head prosecutor says that corruption is the biggest problem of his office. He does not deny that prosecutors are susceptible to taking bribes. Police recently arrested the deputy head of Latvia's tax police and the head of the environment office on suspicion of corruption, accused of pocketing money in connection with a Danish aid project. The head of the Bank of Latvia, Einars Repse, recently resigned from his post and went into politics as the head of a new party. He is expected to win an election victory with his anticorruption platform."

The trial of the former chairman of Latvian Banka Baltija, Aleksandrs Lavents, ended on 3 January with a nine-year jail sentence. But chances are high that he will appeal and possibly leave the justice system to deal with a similarly lengthy sequel, Jorgen Johansson reported in "The Baltic Times" on 3 January.

Lavents, who chaired the bank before its collapse in 1995, has been on trial for almost five years along with the bank's former president, Talis Freimanis, and the former head of investment consultancy L&A, Alvis Lidums, who was working at the bank as an investment specialist.

Lavents and Freimanis were each slapped with identical charges: undermining Latvia's monetary system, large-scale embezzlement, and the forgery of documents. Freimanis was sentenced to six years in prison.

Lidums was charged with embezzlement. He has spent three years and three months in prison during the trial process, about the length of his sentence. He was therefore released.

During the trial, Lavents filed a case with the European Court of Human Rights in Strasbourg, France, arguing that he had been a victim of persecution by the state since his arrest -- now nearly six years ago. The French court accepted his complaint on 6 June 2001. A verdict has yet to be reached.

Prosecutor Juris Peda had been calling for stiffer sentences than those eventually handed down: a 13-year sentence and property confiscation for Lavents, nine years for Freimanis, and six years for Lidums. Peda also wanted the court to ban the defendants from engaging in any kind of business for five years.

But after the verdict was read, Peda told reporters he was satisfied and that he had no intention of appealing the ruling since the defendants were found guilty on all counts. Riga Regional Court Judge Inara Steinerte, however, said she felt sorry both for her colleagues -- who will have to consider the likely appeal in the Supreme Court -- and for the journalists and defendants themselves -- who will have to hear it all over again.

Aside from the charges already heard, Lidums and Lavents have several civil suits against them, amounting to a combined 35 million lats ($55.6 million).

Clients had been lured to Banka Baltija by interest rates on deposits of up to 90 percent. When the institution collapsed, thousands of depositors lost their savings and hundreds of businesses were ruined. The court found that Lavents had been using the institution as his own personal "pocket bank." He lent money to companies controlled by himself and by friends.

Helmuts Ancans, head of the Monetary Policy Department at Latvia's central bank, said Banka Baltija's bankruptcy had two effects on the Latvian economy -- one direct and one indirect. "The direct effect was that it was a major bank in Latvia. It was the leading lending bank. In 1995 its total assets equaled 10 percent of the whole country's [gross domestic product]. It was of course a massive loss for the economy," he said. "The indirect effect was a fall in public trust in banks, resulting in a decrease in liquidity, which pushed up corporate rates. Latvia has now fully recovered, and we are witnessing an increase in long-term deposits."

The crash left Banka Baltija with just over 204 million lats ($314 million) in liabilities.

The Russian Prosecutor-General's Office said it is probing the business activities of Kremlin chief of staff Aleksandr Voloshin, covering an earlier period when he worked in the private sector, Reuters reported on 10 January. The investigation, begun at the request of members of parliament, targets one of the most powerful men in Russia and perhaps the last surviving member of a team that critics say had undue influence over former President Boris Yeltsin.

Rumors of Voloshin's impending dismissal began even as President Vladimir Putin took over at the Kremlin on New Year's Eve, 1999, immediately after Yeltsin resigned unexpectedly. But Voloshin has remained in his job.

"It is no secret that before he entered government service, [Voloshin] was engaged in commercial activity," Interfax news agency quoted Prosecutor-General Vladimir Ustinov as saying. "There is no law against this." He told Interfax he intended to press on with other investigations into prominent figures, including the activities of business magnate Boris Berezovsky, who was also close to Yeltsin and now lives in self-imposed exile abroad.

Voloshin was a key figure in the so-called "family," the inner circle of advisers accused by critics of enjoying inordinate influence over Boris Yeltsin -- including the former president's daughter, Tatyana Dyatchenko. Another close associate of Yeltsin's, Railways Minister Nikolai Aksenenko, was dismissed by presidential decree on 3 January amid an investigation into alleged abuse of office.

Observers of the political scene in Russia point out that the investigation of Voloshin is part of the ongoing struggle between Yeltsin's old "family clan" and the "St. Petersburg/KGB clan" surrounding President Putin.

About 10,000 people faced criminal proceedings in St. Petersburg and the Leningrad region in 2001 for involvement in drug trafficking. ITAR-TASS reported on 10 January that the head of the criminal police at the Main Directorate for Internal Affairs for the city and the region, Aleksandr Smirnov, said at a press conference that over four metric tons of drugs, including over 70 kilograms of heroin, was confiscated from criminals.

One-hundred-seventy-nine people from Azerbaijani criminal groups have been detained, along with 80 Tajiks, 69 ethnic Roma, and 15 Uzbeks accused of specializing in drug trafficking. Among those detained were 156 people involved in wholesale drug operations and 16 organizers. Authorities believe Asian countries, especially Pakistan and Afghanistan, continue to be the main source of drugs arriving in St. Petersburg.

Smirnov added that the scale of production of synthetic drugs has increased recently, with professionals such as chemists, doctors, and pharmacists playing an increasing role in setting up underground drug laboratories. About 20 such facilities were shut down in St. Petersburg by the police in 2001.

Troops of the Panj division of Russian border guards on 9 January thwarted an attempt to smuggle a large consignment of heroin across the Afghan-Tajik border, ITAR-TASS reported on 10 January.

A press officer for the Panj division said a unit of border guards patrolling the border in an armored vehicle found a group of individuals of unknown origin who escaped to Afghan territory when an attempt was made to detain them.

Two sacks, containing 27.5 kilograms of heroin, were found at the location of the encounter. Earlier in the day, troops of the Moskovskiy border guard division and officers of the Tajik Agency for Drug Control found a cache of 20 kilograms of heroin.

The haul marked the first major seizure of drugs on the Afghan-Tajik border this year. A total of six tons of various drugs was seized by border guards in all of 2001. Heroin accounted for almost half of that amount.

Prime Minister Adrian Nastase pledged at an Interior Ministry meeting that corrupt public servants will be punished, Romanian Pro television reported on 8 January

"We have presented to the prime minister a report on our activities in 2001 and also a report on the plan of the Interior Ministry regarding preventing and combating corruption in 2002," Interior Minister Ioan Rus said. He also presented a plan to fight corruption inside the Interior Ministry.

The prime minister approved the plan, which is to be launched immediately. The anticorruption plan is comprised of two parts: One deals with combating corruption among public servants and officials and regulating legislation in that area. The other concerns combating corruption within the Interior Ministry, including checking employees of this ministry. Romanian authorities also say they will take measures to motivate policemen and discourage bribe-taking or favors for criminals.

The Ukrainian Prosecutor-General's Office has reportedly opened a criminal investigation aimed at several lawmakers suspected of money laundering abroad, AP reported on 11 January.

The case was opened against six lawmakers, including presidential ally Oleksandr Volkov and Ihor Bakai, the former chief of the state oil and gas company Naftogaz, Novyi TV reported. The issue was raised in parliament on 11 January, according to Novyi, but the Prosecutor's Office would not immediately confirm the report. The investigation will reportedly pursue the origin of those politicians' accounts in Switzerland.

The probe began 8 January following a request by two lawmakers, Hryhoriy Omelchenko and Anatoliy Yermak. Omelchenko and Yermak urged the move after the "Criminal Ukraine" Internet newsletter ( reported that an anticorruption operation in Switzerland had frozen $500 million in the accounts of some 200 Russian and Ukrainian companies, as well as the six national deputies, last November. The report did not specify the sums frozen in the lawmakers' accounts.

According to Ukrainian law, a news report may serve as grounds for a criminal investigation. The probe is expected to clarify whether the six legislators declared their foreign revenues before election to the parliament, paid appropriate taxes, and were not involved in money-laundering operations.

Ukrainian lawmakers have urged prosecutors to investigate several top officials allegedly involved in illegally selling tanks to the Taliban the AP reported on 15 January. All 174 parliament members present supported a proposal for prosecutors to start an investigation, based on a report in Germany's "Der Spiegel" magazine, over the allegations. The remaining 197 members did not participate in the vote, the parliamentary press service reported. According to Ukrainian law, a media report may serve as grounds for opening a criminal investigation.

The magazine cited Russian experts and lawmaker Viktor Ilyukhin as saying that former Ukrainian security service chief Leonid Derkach and his son Andriy, a parliament member, were involved in selling arms to Afghanistan's former Taliban regime. The report also said Ukrainian-Israeli tycoon Vadym Rabinovich took part in the deals, which delivered between 150 and 200 T-55 and T-62 tanks with the aid of Pakistan's ISI intelligence agency. Rabinovich was mentioned as an arms trader in communications between Taliban commanders in 1995 intercepted by Russian troops on Tajikistan's border with Afghanistan, "Der Spiegel" reported.

"This and other media reports about illegal arms trading by Ukrainian officials caused a great public [backlash] that may undermine Ukraine's prestige," the request reads from the lawmakers who initiated the parliament action, Hryhoriy Omelchenko and Anatoliy Yermak, according to the Interfax news agency.

It was the second appeal for an investigation of illegal weapons trade this year -- both involving the Derkach family.

Ukrainian Prime Minister Anatoliy Kinakh accused the country's parliament of playing political games in deciding how to combat compact-disc piracy to avoid U.S. trade sanctions, the "Kyiv Post" reported on 11 January. U.S. authorities have long threatened sanctions if Ukraine fails to take steps against CD piracy. A 12 December deadline for sanctions was delayed after bilateral talks, but the sanctions were then ordered to take effect on 23 January.

Ukraine's parliament has repeatedly failed to approve legislation that would satisfy U.S. demands and was expected to continue its debate on 17 January. Leftist lawmakers are leading opposition to the antipiracy measure, arguing it will hinder Ukraine's CD-production industry. Kinakh said failure to adopt the bill would bring great harm to Ukraine's economy and prompt thousands of job losses. Lawmakers are making decisions "for private aims," he added. "A sharp political competition outside parliament has advanced to within the parliamentary walls," Kinakh said, according to the Interfax news agency. Parliament speaker Ivan Pliushch expressed hope that legislators will be able to solve the conflict, saying a consensus was possible, according to Interfax. President Leonid Kuchma had also urged parliament to pass the law on CD piracy.

Meanwhile, on 12 January, parliament reviewed two draft bills on CD production that were proposed by the government and a group of lawmakers. No decisions were taken, however.

Illegal production of CDs costs at least $250-300 million a year in damages to the global record industry, according to experts. Ukraine's government estimates that the country may lose at least $470 million annually if sanctions are imposed, and Kinakh said the cabinet has already started preparations to "minimize the sanctions' effect."