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Corruption Watch: January 31, 2002

31 January 2002, Volume 2, Number 4
One of the more perplexing problems in the war against terrorism is how to stop, or limit at best, the flow of money which keeps terrorist cells alive and functioning in many countries.

Terrorist groups, or cells, usually do not require huge sums of money to remain in hiding or during the planning stages of an operation. And while the training camps for Al-Qaeda might have been costly to run in Afghanistan, a team of three or five well-trained cadres are not expensive to maintain. They do not need to get their funds through Swiss banks or from suspicious accounts in places like Nauru, and they do not live in five-star hotels and eat out in expensive restaurants.

The covert flow of money across borders is often accomplished outside established banking systems. Terrorists do not like to use regular banks and wire transfers, for fear of leaving behind a paper trail of their transactions. So they have developed some ingenious methods over the years.

In the mid 1970s, Jewish refusniks leaving the Soviet Union found an innovative way to sell their property and have the money waiting for them abroad. It was a system based on trust. Soviet currency regulations, which forbid exporting hard currency from the country, forced people to find loopholes; and a system was devised to let them keep what was theirs.

It was simple enough: The apartment (or other goods) would be sold to a buyer. That buyer would then transfer by wire or in cash what he owed for the goods to Person A, specified by the seller, living in Country X. Once the money was in Person A's possession, the seller was notified and the goods were passed on to the buyer. When the seller left the Soviet Union, the money was delivered to him or her. Many in the West used this system to buy apartments for their relatives in Moscow, Kyiv, and other cities, while countless refusniks were able to take with them start-up capital for their new lives in the West. The system did not have a formal name, but it was, in fact, a variation on the "Hawala" remittance system used for hundreds of years in South Asia. The Hawala was not illegal, it was an alternative method to transfer large sums of money and avoid large bank transfer fees or government restrictions on currency movements.

The Hawala is also a system used by drug dealers to launder ill-gotten profits and by terrorists to avoid international controls over money flows. It is a system which is difficult to penetrate for law-enforcement agencies, since it does not require incorporation or an office and is often run by close-knit families who do not document their transactions. All the Hawala system requires is a fax machine or computer. in a shop or apartment. in two or more international locations.

A typical Hawala operation can be located in the backroom of a family vegetable store in Beirut. A customer acting for a terrorist organization will come in and give the owner an envelope with, say $50,500 and an e-mail address for "Mr. Y" in Canada. The owner then faxes his cousin, who runs a car-repair shop in Montreal, to give "Mr. Y" $50,000, keeping $500 as his fee, which he splits with his cousin. "Mr. Y" is contacted, goes to the repair shop to have his car serviced, picks up his money, and the deal is done. The money can then be used to finance the expenses of a terrorist cell located in Toronto or elsewhere in Canada. It is often a one-time operation; the next transaction will employ a different Hawala operator in a different city or country.

Such methods of washing and moving money are virtually impossible to control or detect. And the options for law enforcement are limited: Either the Hawala operator can be recruited to inform on his clientele, or a bogus Hawala operation can be set up by anticrime forces to entrap their targets. Both are very risky propositions, and their chances of success are minimal.


The Postal Money Order system in the United States has been shown to be a convenient way of moving illegal funds around that country and abroad. In the case of the "Dussan Organization," a criminal ring operating in New Jersey, New York, and Colombia, members of the ring would structure postal money orders at different post offices and convenience stores in New Jersey and New York and send them by Express Mail service to various businesses in the U.S. and South America. This was a money laundering operation, but it can also be tailored to the needs of terrorists. Since a postal money order merely a piece of paper that instructs an institution to pay the bearer upon presentation of valid identification, terrorist networks have devised their own cross between the Hawala and a postal money order.

The scheme involves a member of a terrorist group giving a Hawala operator a sum of money. He then gives the terrorist a chip (or any object which is recognizable to the Hawala operator at the other end of the chain). The terrorist then delivers the chip to his comrade, who will pick up the money (he can send it by mail or have it hand-delivered). The recipient then presents the chip to the Hawala operator and gets his money. The system is more anonymous and, in case of danger, the chip can be given to any number of other individuals or returned to its original source for a refund of the money.

This is a safer system than trying to bring in large amounts of cash across borders which, if detected, can raise red flags in counterterrorism offices throughout the world. But a chip, worn as an ornament or among small coins in a wallet, is unlikely to raise suspicion.

Terrorist ingenuity will place enormous burdens on law enforcement and counterintelligence organizations in the coming years. The thousands of Al-Qaeda operatives who underwent extensive training at Osama bin Laden's camps in Afghanistan will most likely not lay down their arms without a fight -- and will require financial support to remain active. Should they be denied these funds, civil society can still win out.

The head of the Azerbaijani military commissariat's finance department, Rafiq Suleymanov, has been charged with embezzling 2.2 billion mantas (roughly $462,000), the Azerbaijani newspaper "Ekspress" reported on 25 January. The Tax and Finance ministries discovered the theft during an inspection of the Defense Ministry's finance department. "Ekspress" cited an unnamed source alleging that some 4 billion manats (about $833,000) had been stolen from the finance departments at the Defense Ministry and the military commissariat dating back to 2000. In mid-2001, the Azerbaijani Military Prosecutor's Office began legal proceedings in connection with the case -- resulting in a conviction and prison term for the chief of the Defense Ministry's finance department, Ayaz Haciyev. Another official from within the Defense Ministry's finance department, Igor Averbax, has been placed on a law-enforcement "wanted" list; and Suleymanov, from the military commissariat, was arrested in connection with the findings.

The Croatian parliament adopted a law on combating corruption and organized crime on 25 January, according to Croatian news agency HINA. The newly adopted amendments to an existing law on crime prevention stipulate that local investigating judges may be subjected to security checks without their consent. Such checks would be carried out before judges take office and during their mandates. The amendments also narrow certain law enforcement bodies' jurisdictions to the effort against organized crime.

Senior British crime experts have been posted to Prague to help Czech law-enforcement agencies fight rising crime in the country, correspondent Ian Burrell reported in "The Independent" on 22 January. The newspaper wrote: "According to the Czech interior ministry, international criminals in the country are 'well organized and...becoming more aggressive.' One report states: 'The leaders of criminal organizations will endeavor to infiltrate state structures with the objective of legalizing their activities. They use various ways to manage this aim: corruption in all its forms, extortion, blackmailing, subsidizing interest groups or individuals.'"

In recent years, Czech police have singled out Russian, Ukrainian, Chechen, Georgian, and Vietnamese organized crime gangs as being the most active in Prague, Karlovy Vary, Brno, and other cities.

"The Independent" went on to say that "two of Britain's most senior organized crime specialists" are posted in the Czech capital. Speaking from his office at the Czech Interior Ministry, Superintendent John Mottram is quoted by the paper as saying, "There was a vacuum left when the old authoritarian set-up collapsed that was quickly filled by criminal gangs who saw the opportunities, particularly when the new governments adopted policies of privatization and business expansion." He added that the spread of such organized crime groups represents a threat to British interests, the paper said, particularly in the trafficking of people to feed the Western European and UK sex trades. He also noted tobacco, cigarette, and drug smuggling that accompanies such criminal advances.

"The Independent" also cited Tony White, a former head of the National Criminal Intelligence Service's drugs unit as saying Chinese gangs could be laundering money through the food and services industry. He noted "lots and lots of Chinese restaurants here, and the one thing they have in common is that they are always empty," the paper reported. "A lot of it is straightforward movement of money, but equally it's probably providing some sort of cover for unlawful activities like drug smuggling or smuggling in human beings."

Mottram also cited weapons smuggling as "another concern," the paper reported. "Czechoslovakia was always a very famous manufacturer of arms and explosives and there are an awful lot of firearms in this country," Mottram added.

Customs officers at the western Rozvadov border crossing confiscated nearly 2 kilograms of marijuana from a man on a coach originating in the Netherlands on 19 January, Plzen Customs Directorate spokeswoman Jitka Blahutova told CTK news agency on 21 January. The suspect, who apparently sought to sell the marijuana in the Czech Republic, is a 28-year-old Dutchman.

The trial of 11 Iranians accused of corruption began in Tehran on 20 January, according to the "Financial Times" of 21 January. Testimony was heard from a millionaire carpet dealer on how he gave money and gifts to prominent religious and political figures while defrauding state banks of more than $100 million. The paper wrote: "In the weeks leading up to the public trial, Iran's feuding political factions have accused each other of being steeped in crime. Rumors spread through Tehran of the supposed identities of the accused. Ayatollah Ali Khamenei, the supreme leader closely associated with the conservatives, ordered a serious crackdown on corruption last year. But it remains to be seen whether the hard-line dominated courts use such a campaign attack their rivals allied to Mohammad Khatami, the pro-reform president."

Among the 10 men and one woman in court were three sons of prominent conservative clerics. Also in the dock were the former head of the state Export Guarantee Fund and head of the foreign exchange department of Refah, a state bank. The only accused to give testimony on the first day was Shahram Jazayeri, a 29-year-old businessman whose identity was widely leaked in advance. According to the "Financial Times": "Charges against him [Jazayeri] included giving bribes totaling 38 billion rials ($4.75 million) and obtaining loans amounting to 811 billion rials ($101 million) fraudulently from several state banks by setting up 48 companies, mostly bogus."

Commenting on the trial, the Tehran newspaper "Entekhab" wrote on 21 January: "...[I]t is necessary for the legislative and executive branches of the country to review and reform the monetary circulation system and the money exchange mechanism of the country. If for no reason exclusive economic opportunities are in the hands of a certain sector, this...advantage should be stopped."

The pretrial arrests of two prominent Russian businessmen, Yakov Goldovskii and Yevgenii Koshchits -- both executives of Sibur, a petrochemical affiliate of Gazprom -- have evoked numerous protests from the Russian business community. They have also sparked voices of support for the government's actions. Alla Startseva, a staff writer for "The Moscow Times," explored reactions in a 23 January article.

The paper reported: "The union representing the nation's wealthiest businessmen called on free two Sibur executives and accused the Prosecutor General's Office of tarnishing Russia's reputation by jailing them. 'Russian business is worried by some of the methods currently being used in investigating economic crimes in the country,' according to Arkady Volsky, president of the Russian Union of Industrialists and Entrepreneurs, or RSPP, whose members' enterprises produce 60 percent of the nation's gross domestic product."

The case of the Sibur executives involves the sale of a gas refining plant in Surgut to major oil company, Surgutneftegaz for 2.6 billion rubles ($86 million). Sibur executives have been accused of using the proceeds to try to shrink Gazprom's 51 percent stake in the company by controversial share emission.

"The Moscow Times" wrote: "'We want to know if it is an individual case or changes in the general policy of law enforcement agencies with regard to enterprises,' Volsky said. 'The sudden moves of law enforcement agencies may easily undermine trust in the reliability of Russian enterprises and the Russian economy as a whole, which is being restored with great difficulty...'"

The director of the Center for Political Information, a think tank, is quoted as asking whether the Prosecutor-General's Office -- "obviously a political tool" -- was simply being used to protect state property. Aleksei Mukhin continued by noting that Gazprominvestholding head Alisher Usmanov would be part of the "next phase" of the operation.

"The Moscow Times" quoted Boris Kagarlitskii, from the Institute of Comparative Politics: "It is a pure truth that the reputation of Russian business will not seem better after this. But the thing is that the problem is with Russian business itself, were no clean hands during privatization," And he added: "The RSPP understands very well that any one of them might be next. To protect themselves they are trying to prove themselves to be a serious political force."

A videotape found in a former Al-Qaeda residence in Kabul appears to buttress Russia's claim that Osama bin Laden's militant Islamic network has been backing rebels in Chechnya. The video, which was reportedly obtained from a Kabul landlord, was reported by Matthew McAllester in "Newsday" on 20 January.

The tape features bin Laden and a notorious Arab militant named Khattab who has played a leading role in the Chechen insurgency. It includes footage of ambushes and suicide-bomb attacks, tactics that have frequently been employed by Chechen rebels, and shows the bodies of what appear to be Russian soldiers, some of whom look to have been executed.

Afghans have offered many such tapes, documents, and computers acquired in the wake of the U.S.-led attacks on Al-Qaeda for sale. "Newsday" bought the video for $500.

The tape appears to have been produced in 2000 for propaganda purposes, including to show potential donors the extent of Al-Qaeda aid to Chechens in what bin Laden considers part of his holy war against Christian forces.

The video prominently features an Arab fighter named Khattab, who has gained prominence in Russia and Chechnya as a key leaders of the current Chechen uprising. Sources suggest he may be in his 30s, of Saudi or Jordanian birth, and perhaps the son of a wealthy family. The add that his full name may be Omar Khattab.

In the video, Khattab is shown at a meeting of Chechen rebel fighters, introducing two Arab men in combat fatigues. "They are here to help us and they want to teach us," he says.

Russian President Vladimir Putin and his government have accused Al-Qaeda of funneling millions of dollars to the Chechen rebels' cause through Khattab. Russian officials say Khattab has commanded hundreds or thousands of Arab and other Islamic militant fighters who Moscow says have, at times, formed the bulk of Chechen forces. They have used such claims to help justify Moscow's heavy use of force in Chechnya.

Independent analysts and scattered evidence suggest the scale of Arab and Al-Qaeda support has been considerably less than Moscow would have the world believe. The "Newsday" video provides no clues as to how much money, weaponry, or manpower Al-Qaeda might have sent to Chechnya.

Much of the footage appears similar to images already available in Russia and Chechnya, analysts in Moscow said. But the tape's emergence from a purported Al-Qaeda residence in Afghanistan "will definitely help to prove that Russia is right to use force in Chechnya," said Ivan Safranchuk, director of the Moscow office of the Washington-based Center for Defense Information.

State Customs Committee head Mikhail Vanin has accused the Prosecutor-General's Office of politicking and serving the needs of special interests groups, RIA-Novosti reported on 25 January. In an allusion to his own interrogation by the Prosecutor-General's Office in an investigation of the Customs Committee's probe of businessmen closely linked to the Russian Security Service (FSB), Vanin said, "The Prosecutor-General's Office is becoming a newsmaker, and that is not its business at all." Vanin stressed that he and his deputy, Boris Gutin, have become the target of administrative and legal pressure in an effort to force them to halt "unwanted investigations affecting the interests of influential people." (RFE/RL Newsline, 28 January)

Serbian Interior Ministry forces raided some 400 bars and nightclubs across the country, arresting at least 150 people, the BBC's Serbian Service reported on 25 January. The move was aimed at curbing human trafficking, mostly from other Balkan countries and the former Soviet Union. Most of those arrested were involved in prostitution, but others are suspected of dealing in the sale of illegal arms or drugs.