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Corruption Watch: May 9, 2002

9 May 2002, Volume 2, Number 18
By Roman Kupchinsky

In early April, international press agencies reported that Kazakh Prime Minister Imanghaliy Tasmagambetov told the Kazakh parliament that the government had secreted in a Swiss bank account some $1 billion in profits from the sale of 20 percent of the Tengiz oil field in 1996. On 16 April, Kazakh President Nursultan Nazarbaev told the "Financial Times" that he saw nothing wrong in the creation of this fund and that no money had disappeared.

The money in the bank account allegedly was in the name of the president himself, though Kazakh authorities were quick to claim that neither the president nor his family benefited from it. Kazakhstan's Central Bank Chairman Grigorii Marchenko defended Nazarbaev's decision, saying that, "As an economist and banker, I can only say this was the right decision from an economic point of view," (see "RFE/RL Business Watch," 30 April 2002).

Marchenko went on to say that $880 million from this fund was spent in 1997-1998 to pay off huge pension arrears and to support the budget during a sharp fall in revenues due to lower oil prices. He also stated that by 15 April, $212.6 million had been transferred to the country's national fund for oil income since the start of the year. No documentation was provided to confirm any of these statements.

Kazakhstan has long been suspected of being one of the most corrupt countries in the former Soviet Union. According to Transparency International, in 2000, Kazakhstan received a rating of 84 out of a possible 99, leaving only Kyrgyzstan and Azerbaijan higher in terms of the level of corruption among former Soviet republics.

On 2 July 2000, "Newsweek" reported that, on the basis of documents leaked from the U.S. Department of Justice, an investigation was under way into the transfer of millions of dollars from American oil companies to accounts overseen by Kazakh officials, including Nazarbaev.

According to the Justice Department, payments totaling $115 million were transferred from the accounts of numerous U.S.-based oil companies to a private account in New York held by a Swiss bank via several offshore locations. From this account, at least $60 million was transferred to Swiss accounts held by Nazarbaev, former Prime Minister Akezhan Kazhgeldin, and his successor, Nurlan Balmgimbaev, who currently heads the state-owned energy company Kazakhoil.

The main focus of the Justice Department investigation has been the alleged role played by James Giffen, the Manhattan-based operator of the private merchant bank Mercator, and head of the American Trade Consortium: an organization created by Giffen to promote regional trade and investment during the final days of the USSR.

Giffen could face charges under the Foreign Corrupt Practices Act, which forbids U.S. companies from paying bribes in order to close deals abroad.

And while a grand jury has been called to examine the allegations against Giffen, both ExxonMobil and BP-Amoco are cooperating with the government, while Phillips has maintained silence. Phillips is allegedly the source of $21 million of the $60 million transferred to the Swiss accounts.

Oil is not, however, the only source of money that is feeding corruption in Kazakhstan. According to a report by the Canadian Security Intelligence Service in September 2000, high-ranking Kazakh officials sold 40 Soviet MiGs to North Korea in 1999, allegedly for private gain.

On 11 June 2001, the "Los Angeles Times" reported that Choi Soon Young, former chairman of Korea Life Insurance Company, told a Seoul appeals court that he ordered a subordinate to give $10 million in bribes to Nazarbaev in 1996 in order to promote business in that country. Choi's lawyer told the court that his client believed the bribe would help start his businesses in Kazakhstan.

The current admission by the Kazakh government that a secret fund did exist raises a number of intriguing questions: Was this the only secret fund held by the president?; Why was it held in Switzerland and not in another country?; Was it because of the Swiss banking laws on secrecy in place at the time?; Will documentation be presented to the Kazakh parliament to confirm that these monies were indeed used to pay off pensions and sent back to Kazakhstan?; Why was this "a right decision from an economic point of view."

According to a 29 April report in "The Guardian," Iraq recently received a shipment of antiaircraft missiles from the Czech Republic via Syria in a military buildup in expectation of an attack by U.S. armed forces.

The Czech Industry and Trade Ministry rejected this charge and told CTK news agency on 29 April that none of the weapons named in the article were sold to Syria this year and that direct weapons sales to Iraq are impossible because of United Nations sanctions.

"The Industry and Trade Ministry did not license export of these weapons in 2001 or this year and especially not to Syria and Yemen," Anna Starkova, a spokeswoman for the ministry, told CTK.

"The Guardian" spoke with three Iraqi defectors who left Iraq in the last six months. The men claimed that the first of three deliveries arrived in the Syrian port of Latakia on 23 February. According to "The Guardian" report, one of the defectors said he knows that two more deliveries are on their way, if they have not yet arrived.

"The first consignment included anti-aircraft missiles, rockets and guidance systems for Iraq's long-range variants of the old Soviet Scud missile, all illegal under the UN embargo. The shipment, which cost Baghdad $800,000, originated from the Czech Republic under export licenses for Syria and Yemen. Its unloading at Latakia was overseen by an Iraqi intelligence officer, L[ieutenant] Col[onel] Khaled al-Adhani, who also oversaw its diversion from its official destination by road to Iraq. One of the recent defectors, Colonel Khaled Ayad al-Dilemi, from the 12,000-strong elite Special Republican Guard, said that one of his fellow officers had also been dispatched to Latakia to provide protection for the shipment," the report said.

Britain has asked Russia to take action against an arms dealer who is living freely in Moscow despite his alleged role in supplying weapons to the Taliban and Al-Qaeda, "The Guardian" reported on 4 May.

Minister of State Peter Hain asked Russian authorities at a recent meeting to turn in Viktor Bout, the subject of an international arrest warrant for flying arms to Afghanistan before the 11 September terrorist attacks in New York and Washington, (see "RFE/RL's Crime and Corruption Watch," 7 March 2002).

Britain's Foreign Office claimed on 2 May that Bout, whom Hain called "the merchant of death" in 2000 for supplying arms to the rebel UNITA movement in Angola, was as an aircraft supplier for Osama bin Laden.

The killing of independent journalist Heorhiy Gongadze in Ukraine in September 2000, as well as the alleged implication that Ukrainian President Leonid Kuchma ordered his "disappearance," has created a rift in the relationship between the United States and Ukraine. Below is the text of the latest statement in the U.S. Congress in this matter.

"Statement in U.S. Congress by Rep[resentative] Christopher H. Smith, Co-chairman, Commission on Security and Cooperation in Europe [Helsinki Commission] on 2 May 2002.

"Murder of Ukrainian Heorhiy Gongadze Still Unsolved.

"Mr. Speaker, the murder of Ukrainian investigative journalist Heorhiy Gongadze remains unsolved. On September 16, 2000, Gongadze, editor of an Internet news publication critical of official, high-level corruption in Ukraine, disappeared. Seven weeks later, his remains were found in Tarashcha in the Kyiv region.

"Repeated expressions of concern to the [g]overnment of Ukraine have been met with stonewalling. Over the last 18 months, the Helsinki Commission, [m]embers of the House and Senate, the Department of State, the OSCE, the Council of Europe and other international institutions repeatedly have raised this case and urged President Kuchma and the Ukrainian [g]overnment to undertake a speedy, serious, open and transparent investigation into the Gongadze murder case.

"Back in December of 2000, I urged Ukrainian authorities to resolve this grave matter in a timely and just manner before the case further tarnished their credibility in dealing with fundamental human rights. Last July, a number of us were present at the Paris OSCE Parliamentary Assembly meeting, where Gongadze's widow Myroslava accepted the OSCE PA Prize for Journalism and Democracy on his behalf. A resolution adopted by the OSCE PA in Paris expressed dismay 'that the criminal investigation into the murder of journalist Heorhiy Gongadze has been obstructed by authorities and has not been carried out in accordance with the rule of law.'

"Last month, Ukrainian authorities blocked FBI experts from examining evidence gathered during the initial investigation. The [b]ureau had been invited by Ukrainian authorities to advise and assist in the investigation of the case and earlier had participated in identifying Gongadze's remains. Over the last year, Ukrainian prosecutors routinely cited their request for assistance from the FBI as evidence that they were working diligently to solve the murder.

"According to a statement released by the U.S. embassy in Kyiv, the four FBI experts were told that Ukrainian law prohibits prosecutors from releasing any information to them. They were 'unable to discuss any aspects of the case, share evidence or conduct a joint site inspection. Because of this, the FBI team could not provide suggestions that might help Ukrainian law enforcement authorities advance the investigation of the murder of Mr. Gongadze.' This lack of cooperation -- after promises to accept the U.S. technical assistance -- is an indication of bad faith on the part of the Ukrainian authorities.

"This is only the latest example [that] seriously questions the Ukrainian authorities' commitment to resolving this case and has led many to conclude that the Procurator-General's [O]ffice is hampering the investigation into Gongadze's death. Particularly telling was the Procuracy's initially casting doubt on the results of a DNA test reported in February 2001, which determined with a 99.6 percent probability that the body exhumed from a shallow grave in Tarashcha was, indeed, that of Gongadze. The [p]rocurator-[g]eneral, Mykhaylo Potebenko, who recently announced he would resign to become a [m]ember of [p]arliament from the Communist Party, has also been uncooperative with Gongadze's widow and mother, even after the court gave them status that legally permitted them access to details of the investigation. An assessment of the case last year by Freimut Duve, the OSCE [r]epresentative on [f]reedom of [m]edia, found that the investigation into Gongadze's disappearance has been 'extremely unprofessional.' It is high time for the Ukrainian authorities to mount a serious, transparent investigation into this case, as well as the cases of other murdered journalists.

"Since 1998, 11 journalists have been killed in Ukraine and 48 severely injured in unexplained attacks, according to Reporters Without Borders. Over the last year, several international bodies have called on Ukrainian authorities to launch a fresh investigation into the disappearance and death of Mr. Gongadze and other journalists and to allow for an independent investigation or to set up a new independent commission of inquiry compris[ed] of international investigators. I also hope that the newly elected Ukrainian parliament will take aggressive action in encouraging governmental accountability for solving the murder and bringing the perpetrators to justice.

"Mr. Speaker, on March 31, Ukraine held parliamentary elections. Despite governmental interference in the campaign and abuse of state resources, the Ukrainian electorate showed a strong independent streak with a strong pro-democratic, pro-European orientation. A substantial portion of the Ukrainian people clearly want change -- they want to live in a country where democracy and human rights are honored and where the rule of law prevails.

"The United States remains committed to encouraging these yearnings. The U.S. [g]overnment is the largest bilateral donor in Ukraine, and American companies still are the largest investors in Ukraine. We are deeply engaged with Ukraine in military and security issues, educational exchanges, small business, agriculture, energy, and the development of civil society. American engagement with Ukraine is a testament to the importance that we attach to U.S.-Ukraine relations. However, the level of U.S. engagement is increasingly being questioned, in part because of the obstructionist actions of the authorities concerning the Gongadze case, the curtailing of media freedoms, the persistent debilitating problem of corruption and, most recently, troubling allegations that President Kuchma may have authorized the clandestine sale of the Kolchuga radar system to Iraq in violation of UN sanctions.

"Mr. Speaker, as [c]o-[c]hairman of the Helsinki Commission, I once again urge in the strongest possible terms Ukrainian authorities to take seriously the concerns regarding the circumstances that led to the Gongadze murder and the subsequent investigation. His widow, young children, and mother deserve better. The Ukrainian people deserve better.


By Roman Kupchinsky

Russian Prosecutor-General Dmitrii Ustinov presented his report on crime in Russia in 2001 to Russian President Vladimir Putin and the Federation Council on 29 April, reported. The report did not contain any surprises. If anything, it was an indictment of the work of Russian law-enforcement agencies in the past year.

Ustinov began by informing his audience that last year differed little from the preceding one, saying that, "The country is passing with difficulty through a multi-year zone of legal nihilism." Russia and its society have not been able to overcome the consequences of an economic, sociopolitical, and spiritual-moral crisis, he said.

The number of crimes reported in 2001 increased by 0.5 percent from the previous year, approaching 3 million crimes. The most dramatic increase was in the number of homicides, which increased from 31,800 in 2000 to 33,500 in 2001.

In 2001, criminals victimized more than 2 million Russian citizens. This is, however, simply the number of reported crimes, which is only part of the picture. The police concealed many crimes and many more went unreported. Thus, many crimes that are life-threatening, as well as property offenses and "hooliganism," are not being reported to the police, Ustinov wrote.

In 2001, 884,300 crimes went unsolved. Of that number, 7,762 were unsolved murders, which rose from 5,870 in 2000. In 2001, there were also 625,000 unsolved thefts, 15,700 unsolved robberies, and 70,700 unsolved burglaries. Only 18 percent of car thefts were solved.

White-collar crime in Russia rose dramatically in 2001. According to Ustinov, these types of crimes resulted in the theft of some 66 billion rubles ($2.1 billion), more than twice the amount reported in 2000.

The Russian prosecutor-general also said state budget money had been mishandled and misappropriated by the Transport Ministry, Railways Ministry, and Gazprom, the state natural-gas monopoly.

"Executive agencies are indulging in large-scale abuses in signing rental contracts, transferring assets to legal entities for free, and failing to remit to the state the packages of shares from purchasers who did not meet their investment commitments," the report says.

Russian Federal Property Fund and Defense Ministry officials have also committed such abuses, Ustinov said. The Prosecutor-General's Office recovered 420 million rubles ($13.5 million) in damages and made foreign companies pay more than $470 million to the Defense Ministry, he said.

Nearly 2,700 officials have been held liable and brought to justice for squandering state assets, Ustinov said, for which the Prosecutor-General's Office has opened 754 criminal cases.

The Prosecutor-General's Office has identified more than 170 banks where state funds were illegally deposited, Ustinov said. Because of less than honest credit institutions, Russian budget revenues in 2001 were more than 42 billion rubles short of the amount due, he said.

Adolescent crime has also surpassed past statistics. In 2001, 1.14 million juveniles were charged by police with various offenses. Another 300,000 children needing assistance were taken from attics, basements, railroad stations, airports, and other places.

According to the prosecutor-general, more than 75 million citizens (one out of every two inhabitants of Russia) were subjected to administrative sanctions, such as driving violations and other actions not under the jurisdiction of the Criminal Code.

Russian police also came under greater scrutiny. Ustinov identified 45,400 unlawful acts by state structures, the majority by the police. Such actions as collecting excessive fines have become "ordinary events," Ustinov said.