Corruption Watch: June 14, 2002

By Roman Kupchinsky

According to "Kommersant-Daily" on 3 June, Russian President Putin issued a decree allowing the Committee for Military-Technical Cooperation with Foreign Countries (KVTS) to classify data on weapons exports as state secrets. The immediate result of this measure will be that any public disclosure or analysis of Russian arms exports can be treated as "divulging state secrets." The newspaper also mentioned that the KVTS is already classifying arms sales to China at the request of the Chinese government.

The implications of this decree can be extremely far-reaching. International legal experts will have to examine the effect it might have on United Nations Resolution 46/361, Transparency in Armaments (TIA), adopted by the General Assembly on 9 December 1991. That resolution established the UN Register of Conventional Arms, which requested member states to provide data annually on imports and exports of arms in seven categories. There are no constraints or verification provisions associated with the UN register.

The results of a 1999 study by the Center for Strategic and International Studies (CSIS) called "The Strategic Impact of Russian Arms Sales and Technology Transfers" by Anthony H. Cordesman draws a number of disturbing conclusions on Russian arms-sales trends over the previous decade. The study indicated that U.S. forces are increasingly vulnerable to such transfers and that: "Russia has the potential to make transfers that are deeply destabilizing in terms of the areas where the U.S. plans for possible major regional contingencies. Russian transfers to China and Iran have already had an important impact on some aspects of their war-fighting capability. Like all advanced military powers, Russia has the potential to provide far more threatening transfers to nations like China, Iran, Iraq, Libya, North Korea, and Syria in the future."

The fact that Beijing has asked the Russian side to keep secret the details of arms sales to China will most certainly lead to a concern that these arms might be resold to rogue regimes or used against Taiwan in case of a conflict.

The CSIS study states: "China is not simply an importer of arms, it is a major exporter of arms and missile technology.... China has again begun to increase its military exports after much [sic] cuts during the early 1990s. China is a particularly important supplier to Iran and has been a major supplier to Iraq in the past. Any Russian transfers of advanced military technology are likely to eventually pass on to potentially hostile states once China absorbs them and begins to produce similar equipment or weapons."

It will be important to watch whether other former Soviet republics follow Russia's lead in classifying arms sales -- Ukraine and Belarus in particular, which have been active on the world's legal and illegal arms markets.

The Department of State released its second annual report on human trafficking on 5 June. In the introduction to the report, the State Department presents some troubling facts and statistics: "Over the past year, at least 700,000, and possibly as many as four million men, women and children worldwide were bought, sold, transported and held against their will in slave-like conditions. In this modern form of slavery, known as 'trafficking in persons,' traffickers use threats, intimidation and violence to force victims to engage in sex acts or to labor under conditions comparable to slavery for the traffickers' financial gain. Women, children and men are trafficked into the international sex trade for the purposes of prostitution, sex tourism and other commercial sexual services and into forced labor situations in sweatshops, construction sites and agricultural settings. The practice may take other forms as well, including the abduction of children and their conscription into government forces or rebel armies, the sale of women and children into domestic servitude, and the use of children as street beggars and camel jockeys."

The 110-page report evaluates the performances of 89 countries, putting each country in one of three categories depending on how its domestic efforts meet minimum standards for the elimination of trafficking. "Tier 3" countries are deemed to be not in compliance and not making significant efforts; "Tier 2" countries are not in compliance but are making significant efforts; and "Tier 1" countries are in compliance. The report covers a wide range of countries, including:

ALBANIA (Tier 2)

"Albania is a source and transit country primarily for women and girls trafficked for the purposes of sexual exploitation to Italy and Greece, and on to other EU countries, such as Belgium, France, and the Netherlands. Victims transiting Albania come mostly from Romania and Moldova, with smaller numbers from Bulgaria and Ukraine. Young boys are also reportedly trafficked from Albania to work as beggars in Italy and Greece."

ARMENIA (Tier 3)

"Armenia is a source country for women and girls trafficked to the United Arab Emirates, Turkey, Russia, Greece and Germany for sexual exploitation.

"The Government of Armenia does not fully comply with minimum standards for the elimination of trafficking and is not making significant efforts to do so. There is no law against trafficking, but there are laws against falsification or seizure of passports and personal identification documents, pandering, and rape."

BELARUS (Tier 3)

"Belarus is a country of origin and transit for women and children trafficked for purposes of sexual exploitation to Russia, Ukraine, Lithuania, Germany, Israel, Poland, Czech Republic, Turkey, Cyprus, Greece, Hungary and the Federated Republic of Yugoslavia.

"The Government of Belarus does not yet fully comply with minimum standards for the elimination of trafficking and is not making significant efforts. The new criminal code penalizes trafficking and the hiring of people for exploitative purposes. To date, no trafficking cases have been prosecuted under the new criminal code."

RUSSIA (Tier 3)

"Russia is a country of origin for women and children trafficked to many countries throughout Europe, the Middle East and North America for purposes of sexual exploitation.

"The Government of Russia does not yet fully comply with minimum standards for the elimination of trafficking and is not making significant efforts to do so. There is no law specifically against trafficking. Recruitment for prostitution is illegal but not a criminal offense. The government of Russia recognizes there is a trafficking problem and the Duma has asked the United States for cooperation in drafting anti-trafficking legislation. Existing laws which can be used against traffickers include border crossing violations, document fraud, kidnapping, forced sexual activity, fraud, organized crime and pornography statutes. The government of Russia rarely vigorously investigates trafficking cases of adults and only a few related cases have been prosecuted. Given the relatively low age of consent (14 years), it is difficult to prosecute trafficking cases when the victims are minors above that age absent threats or acts of violence by the traffickers. Resources for law enforcement are very limited. No specialized anti-trafficking training is provided by the government, but officials have participated in international and domestic training programs when available."

UKRAINE (Tier 2)

"Ukraine is a source country for women and girls trafficked to Central and Western Europe and the Middle East for purposes of sexual exploitation.

"The Government of Ukraine does not yet fully comply with minimum standards for the elimination of trafficking; however, it is making serious and sustained efforts to do so. Although limited in resources, the government has the political will to make efforts against trafficking. A new criminal code effective September 2001 criminalizes human trafficking, pornography and sexual exploitation. Anti-trafficking units have been established at the national and oblast level. A limited but increasing number of cases against traffickers are prosecuted. Criminal organizations are believed to run trafficking activities. The government has also suspended the licenses of individuals and companies involved in trafficking in persons. The government does not condone trafficking but a number of law enforcement officers may be corrupt thereby facilitating trafficking in persons."

The report came under criticism from U.S.-based Human Rights Watch (HRW). LaShawn R. Jefferson, executive director of the Women's Rights Division of HRW, said: "It's crucial that each country chapter relay basic information about how many people are trafficked into, through, and from it; the types of forced labor for which people are trafficked; the number of actual prosecutions and convictions for trafficking; and how many state agents have been investigated, tried, and convicted for trafficking-related offenses."

HRW also noted that a "consistent failure of the report" is that it does "not evaluate the effectiveness of government programs and is often vague about the details of those programs. Moreover, Tier 2, where fifty-two countries fall, seems to be a catch-all category, encompassing countries of disparate trafficking records."

A Bulgarian national serving a 1997 sentence in a Czech prison, Tsvetomir Belchev, controlled a criminal enterprise that dealt in the trafficking of women from Bulgaria to four nightclubs in the Czech city of Chomotov directly from his jail, BTA news agency reported on 3 June. The ring was operating for a year and a half before it was discovered and dispersed. According to BTA: "The women reached the Czech Republic with their own IDs. They were lured [by] promises of well-paying jobs. Some of them left Bulgaria as career prostitutes, but others were forced into prostitution after their arrival in the Czech Republic, according to Vasil Gochev of the Bulgarian National Service for Organized Crime (NSOCC) Smuggling Division." Six Bulgarian men and two women, along with a Czech man and a Slovenian woman, were arrested by Czech police in connection with the network.

The Russian Interior Ministry has opened an investigation into the activities of two executives of Slavneft oil company. The probe was announced in mid-May in advance of a privatization tender for almost 20 percent of the state-controlled company. It also came in advance of a company shareholder meeting where a new president was to be elected. Officials from the Interior Ministry's Moscow office stated that Vice President for Sales Yurii Sukhanov and Dmitrii Perevalov, vice president of oil purchases and exports, were suspected of abuse of power related to an investigation opened on 29 April into large-scale embezzlement, according to Interfax and "The Moscow Times" of 13 May. According to "The Moscow Times" of 13 May:

"The investigation uncovered instances of abuse of power by Sukhanov and Perevalov, resulting in 'great material damage to the state as the main shareholder of the company,' Interfax cited law enforcement officials as saying. Slavneft allegedly used illegal transfer pricing schemes, whereby subsidiary Slavneft-Belgia sold oil at below market prices through a chain of organizations leading to a Sibneft affiliate, which in turn sold the oil at world market prices to international oil companies, said Mikhail Grishankov, a deputy chairman of the Duma's security committee, in an interview aired on NTV television on Saturday [11 May]." However, according to Western and Russian analysts, the investigation is part of a much larger battle around the privatization of 20 percent of Slavneft. Major companies Sibneft, LUKoil, Tyumen Oil Company (TNK), and Yukos have all joined in the battle to win control of a part of Slavneft. Analysts have pointed out that much of the criminal allegations are part of a behind-the-scenes struggle between two major groups of oligarchs in Russian society; the older "family"-oriented group behind Prime Minister Mikhail Kasyanov and the new "chekist" St. Petersburg group supporting President Vladimir Putin.

"The Moscow Times quoted Steve Allen, oil and gas analyst at Troika Dialog, saying the charges appear to be an attempt to undermine Sukhanov. "The investigation is entirely connected to the election of the company president, and it has to do with a struggle behind the scenes between two or more groups for control of Slavneft," he said.

The Jamestown Foundation's "Russia's Week" on 16 May claimed that the two groups were: "(1) Bolshaya MADAM, or Big MADAM, the second word being an acronym derived from the initials of five leading oligarchs -- Urals Mining and Metals Company chief Iskander Makhmudov, Roman Abramovich, Siberian Aluminum chief Oleg Deripaska, EvrazHolding chief and steel baron Aleksandr Abramov and MDM Bank board chairman Andrei Melnychenko; (2) BMP, standing for Rosneft President Sergei Bogdanchikov, Gazprom CEO Aleksei Miller and Mezhprombank founder and Federation Council member Sergei Pugachev. The first group overlaps with the group of Yeltsin-era oligarchs sometimes referred to as the 'Family.' The second overlaps with the St. Petersburg special service veterans known as the 'Chekists.'"

Sukhanov won the election to become Slavneft's president, and the "Bolshaya MADAM" group and Kasyanov celebrated a victory. Will it last is another question, since many observers believe that Putin's people are preparing a new offensive.

With the help of a newly established public "hot line" to report on corruption, the Federal Security Service (FSB) on 27 May detained two senior officials in Barnaul, Altai Krai, on charges of bribery and fraud. A deputy head of department in the Russian Justice Ministry's main penal directorate for Altai, Aleksandr Lopatenko, was charged with fraud. That day, the deputy head of the Altai District administration in charge of agriculture, Vasilii Morozov, was caught in the act of receiving a $1,000 bribe, Russian news agency RIA reported on 4 June.

Vladimir Reftov, vice president of oil wholesaler Uralbiznesneft in Yekaterinburg, died in hospital on 4 June after having been shot in while his car by two gunmen riding motor bikes. Police suspect the murder might be linked to Reftov's business activities, RIA news agency reported on 4 June. Uralbiznesneft supplies wholesale oil products to the Sverdlovsk Oblast of Russia and owns 17 filling stations in Yekaterinburg and the vicinity. The enterprise is a dealer and partner to LUKoil, Tyumen Oil Company, Bashneftekhim, and the Onako trading house.

Four former associates of Ukrainian opposition leader Yuliya Tymoshenko, a Ukrainian opposition leader, were detained in Turkey on 1 June based on an Interpol request from Ukrainian authorities. The four, all former senior executives of Unified Energy Systems of Ukraine (EESU), include Tymoshenko's father-in-law, Hennadiy Tymoshenko, the Ukrainian press reported on 1 June. Ukrainian authorities accuse them of hiding hard-currency profits and theft of state property in the 1990s, when Yuliya Tymoshenko was running EESU. Last year Tymoshenko was accused by the Ukrainian Prosecutor-General's Office of the same charges and was imprisoned for some time. She was eventually released from jail, and a Ukrainian court found the charges to be unfounded. The Prosecutor-General's Office claims Tymoshenko was involved in illegal dealings with Pavlo Lazarenko, who has been indicted in the United States for money laundering and mail fraud and is presently awaiting trail in San Francisco. In the first indictment of Lazarenko, Yuliya Tymoshenko's name was indeed mentioned as a party to his dealings. In the subsequent indictment, her name was removed. Turkish officials are considering whether to extradite the four detainees to Ukraine.

Beginning on 1 July, all banks and financial institutions in Yugoslavia will be required to report all transactions in excess of 600,000 dinars (or about $21,000) under new money laundering legislation, Tanjug news agency reported on 3 June. The legislation does specify to whom such information must be reported. According to the new law as published on the National Bank of Yugoslavia's website (www.nbj.yu) money landering is defined as:

"The term money laundering shall be understood to mean depositing the money acquired through illegal activities (gray economy, illicit traffic in arms, narcotic drugs and psychotropic substances, and the like) in the accounts kept with banks and other financial organizations and institutions, or introducing such money in any other manner into legal financial flows -- which domestic and foreign physical and legal persons perform with the aim of carrying out permissible economic and financial activities.

"Pursuant to Paragraph 1 hereof, the term money shall be understood to mean cash, including foreign currencies in cash and other financial assets. The following shall be considered as acts enabling money laundering:

* concealment or disguise of the origin of money or the location where the money has been deposited, concealment of the purpose of using the property and all the rights resulting from the performance of forbidden activity;

* exchange or transfer of the property resulting from the performance of forbidden activities;

* acquisition, possession or utilization of the property resulting from the performance of forbidden activity; and

* concealment of illegally acquired social property and social capital, in the process of ownership transformation of enterprises."