Corruption Watch: September 6, 2002

By Roman Kupchinsky

Transparency International (TI), an international NGO dedicated to the battle against corruption, released its "Corruption Perceptions Index 2002" ("CPI") on 28 August in Berlin.

TI describes the "CPI" in the following terms: "The goal of the CPI is to provide data on extensive perceptions of corruption within countries. The CPI is a composite index, making use of surveys of businesspeople and assessments by country analysts. It consists of credible sources using diverse sampling frames and different methodologies. These perceptions enhance our understanding of real levels of corruption from one country to another" (see www.transparency.org).

According to TI Chairman Peter Eigen: "Politicians increasingly pay lip-service to the fight against corruption but they fail to act on the clear message of TI's CPI: that they must clamp down on corruption to break the vicious circle of poverty and graft. Seven out of ten countries score less than 5 out of a clean score of 10 in the CPI 2002, which reflects perceived levels of corruption among politicians and public officials."

Addressing the problem of corruption in the former Soviet Union, Eigen added: "The recent steps by President Vladimir Putin to introduce tax reforms and new laws fighting money-laundering are beginning to show the prospect of a lessening in perceived corruption in Russia, but the CPI 2002 indicates that Russia has a long way to go and remains seriously corrupt, together with Uzbekistan, Georgia, Ukraine, Kazakhstan, Moldova and Azerbaijan, all of which score less than 3 out of 10."

The Czech Republic was rated 52nd with a score of 3.7, on the same level as Slovakia, Sri Lanka and Latvia. Poland and Bulgaria each had a score of 4.0. Bangladesh was perceived to be the most corrupt country in the world with a score of 1.2. The least corrupt was deemed to be Finland with a score of 9.7.

Speaking at a discussion on international crisis prevention during the European Forum in Alpbach, Austria, Romanian Foreign Minister Mircea Geoana said the greatest problem facing the entire Balkan region is organized crime, the Austrian daily "Die Presse" reported on 28 August. Geoana added that smuggling and human trafficking in the region are contributing to terrorism and appealed for help in combating this evil from the international community. RK

Bulgarian police arrested six members of a highly organized gang of former special commandos who specialized in murder for hire operations and extortion, abductions and racketeering, Bulgarian news agency BTA reported on 26 August. Searches of the detainees' homes around Sofia and at other locations in the country produced 50 kilograms of explosives, including plastic explosives; 30 hand grenades; electric fuses; nine Molotov cocktails; nine SKS Simonov sniper rifles with mufflers and optical sights; two makeshift rifles, also with silencers and optical sights; two Steyr and Kalashnikov assault rifles; a Skorpion submachine gun; and PSM and Astra pistols. "The criminal structure is suspected of perpetrating a number of terrorist acts in the recent past, including attacks over the last few weeks," according to BTA. RK

The Five to Twelve Expert Club, a nongovernmental organization of experts who provide economic advice to the Bulgarian government, told a news conference on 26 August that it suspects a number of Bulgarian companies of engaging in money laundering in conjunction with grain sales. Citing Khristo Milenkov, deputy director of the Sofia Commodity Exchange and a member of the club, BTA news agency on 26 August wrote: "Who has the money to buy 200,000-300,000 tons of green crop in April at 120-130 levas per ton (120 levas is roughly equal to $118) without leaving any evidence in the banking system that money has been borrowed? Who can organize the tilling of 20,000-30,000 hectares of land for grain production?" The club's experts suggested that grain trading should only be conducted through exchanges, using warehouse receipts, according to BTA: "The Agriculture State Fund should support wheat growers on a quota basis. Quotas should be set for each region and municipality before the beginning of the yearly cycle." RK

Prosecutors have indicted Zbigniew Farmus, an adviser to former Deputy Defense Minister Romuald Szeremietiew, whom they suspect of trying to extract bribes worth $150,000 from companies that participated in tenders run by the Polish armed forces, Polish Radio reported on 24 August. Farmus is also alleged to have unlawfully accessed documents classified as state and NATO secrets. Farmus, who is now in custody, was detained in July 2001 aboard a ferry bound for Sweden. RK

Information continues to emerge about the past activities of Lev Golovlev, a member of the Russian State Duma who was murdered in Moscow on 21 August in an apparent contract killing (see "RFE/RL Crime and Corruption Watch," 29 August 2002). According to "The Moscow Times" of 28 August, Chelyabinsk prosecutors "unearthed such a thick layer of crimes and such a large amount of embezzled [funds] that this and the way these ill-gotten gains were laundered" were viewed by investigators as the main motive for his murder. The Chelyabinsk investigation, begun in 1996, has raised suspicion that some 3 billion rubles ($500 million) was embezzled by the deputy from schemes involving the privatization of large regional enterprises. The money, according to a spokesman for the Prosecutor-General's Office, was sent to bank accounts in Cyprus, Germany, Britain, the United States, and the Virgin Islands. A money-laundering investigation into these funds is now under way. RK

Two local officials were assassinated in apparent contract hits on 26 August, Russian news agencies reported. In Pskov, Leonid Volkov, who was elected head of the Loknyan Raion in April, was shot twice in the head as he left his home to go to work, dni.ru reported. Police are investigating the murder. Meanwhile, in Novosibirsk, City Council Deputy Aleksei Karpunin was shot several times with a Kalashnikov assault rifle outside his dacha by an unknown assailant. According to dni.ru, police believe the murder was most likely connected to Karpunin's commercial activities as co-owner of the local Sinad casino and several other businesses. As a member of the Novosibirsk City Council, Karpunin served on the Committee for Municipal Property and Economic Development and the Committee on Finance, the Budget, and Tax Policy. On 20 August, the head of the Moscow Railway, Sergei Paristyi, was also killed in similar fashion. RC

Aleksandr Voitovich, deputy director of the Trauma and Orthopedics Institute, was killed on 23 August, fontanka.ru and other Russian news agencies reported. Voitovich was apparently shot in the mouth near his home as he was leaving for work. Police are investigating the incident. RC

Extradition hearings in Italy for Alimzhan Tokhtakhunov, the Russian accused by U.S. law enforcement of fixing skating events at the Salt Lake City Olympic Games, may begin as late as November, according to his lawyer. Tokhtakhunov was arrested in Italy on 31 July and indicted on racketeering charges in New York. He is being held in a prison in Venice. According to Italian officials, interrogation of the suspect has not begun because prosecutors have been on vacation. According to "The Moscow Journal" of 27 August: "Italian law permits 45 days from the date of arrest for extradition requests to arrive, meaning U.S. officials have until mid-September to file the necessary papers." Tokhtakhunov and Russian International Olympic Committee members have vehemently denied the charges against him. RK

The Russian trade in pirated compact discs, second only to China's, has been using government property to produce the illegal discs, according to an article in "The New York Times" on 20 August: "For pirates, government facilities and military factories offer a wall of secrecy that protects against police inspections. For military plants, which now stand mostly idle after a precipitous drop in military procurement in the 1990s, disc production can be a lifeline," the paper reported. Among those suspected of such activities is a plant owned by Oleg Gordiyiko, 40, who leads the Intellectual Property Rights Committee at Russia's Chamber of Commerce, according to the paper, though Gordiyiko vigorously denied accusations of piracy. The plant in question stands on a site that belongs to the Kremlin, the paper reported. In July, U.S. Ambassador to Russia Alexander Vershbow sent a letter to Russian Media Minister Mikhail Lesin protesting "massive CD pirating in Russia" ("RFE/RL Crime and Corruption Watch," 8 August 2002). In an interview with "The New York Times," Gordiyiko reportedly said: "If I have a good printer, and someone prints money on it, why should I be responsible for the counterfeits?" Gordiyiko gave his last interview for the article from St.-Tropez, France, the paper noted. "The New York Times" reported: "A government official had a similar reaction when asked about Mr. Gordiyiko. The Kremlin's property office 'just leases out the territory,' said Vladimir Grigoriyev, an official in Russia's [Media] Ministry." It continued: "They don't particularly care what's being done in there.... Even so, high-level connections appeared to have helped last summer, when the police raided Mr. Gordiyiko's factory and confiscated stacks of discs they said were counterfeit. Soon after, the case was mysteriously closed and the police officers who led the raid were either fired or transferred. Police officials refused to comment on the case." RK

A Russian emigre in Miami, Viktor Tsimbal, the president of Beluga Caviar Inc., pleaded guilty on 26 August in Miami to charges of running a caviar-smuggling ring. The ring is reputed to have smuggled more caviar out of Russia in 1999 than the entire nation's export quota for that year, AP reported on 27 August. According to AP, Tsimbal used false papers to smuggle the goods out of Russia. The United States requires country-of-origin documentation to bring caviar into the United States. Tsimbal, 41, a Russian national, ran his operation through Poland, paying smugglers $500 plus airline and hotel expenses to bring in luggage filled with black-market caviar through Poland to Miami, AP reported. "More than $500,000 worth of caviar and false labels were seized when a search warrant was served at his North Miami Beach business. All told, about $860,000 worth of caviar was seized during the investigation," AP added. RK

Ivan Lexa, the former Slovak Intelligence Service (SIS) director, was released from custody in Bratislava on 16 August, local and international agencies reported. Lexa had been extradited in July from South Africa, where he was said to be in hiding for two years. According to the "Slovak Spectator" website on 26 August: "Lexa was released following a Supreme Court ruling that a lower court judge had been biased in taking Lexa into custody last month after he was deported to Slovakia." Lexa has been sought by Slovak authorities for charges related to the kidnapping of the son of former Slovak President Michal Kovac and the alleged misuse of $27,000 in SIS funds. A longtime supporter of former Slovak Prime Minister Vladimir Meciar, Lexa has claimed that the charges against him are groundless and politically motivated. RK

The Ukrainian Prosecutor-General's Office arrested the local prosecutor in the Taraschin Rayon of Kyiv Oblast on 29 August, according to RFE/RL's Ukrainian Service. The decapitated body presumed to be that of journalist Heorhiy Gongadze was found in the same rayon in November 2000. According to RFE/RL's Ukrainian Service on 30 August, he was arrested in conjunction with Gongadze's murder. RK

UKRAINE'S VIRTUAL STRUGGLE AGAINST CORRUPTION AND ORGANIZED CRIME

By Taras Kuzio

Ukraine's paradox is that it has a record of committees and legislation, decrees, and resolutions that have all ostensibly dealt with corruption and organized crime. If legislation and committees are in place, then, why is there little or no progress in combating corruption and organized crime in post-Soviet Ukraine?

Nearly a decade of experience under such measures suggests that only small-time offenders and politically disloyal individuals have been targeted.

Vasyl Onopenko and Serhiy Holovatiy understood the gap between official declarations and the lack of official commitment to the struggle against corruption and organized crime. They each resigned as minister of justice, a post they occupied between November 1991-August 1995 and September 1995-August 1997, respectively. Both were subsequently elected to the current parliament as members of the radical, anti-presidential Yuliya Tymoshenko Bloc.

An uncompromising struggle against Ukrainian corruption and organized crime was first announced by then-Prime Minister Leonid Kuchma in December 1992. With little privatization under President Leonid Kravchuk (1991-94), the main avenues for corruption and organized crime lay in Soviet asset stripping and large profits on the gap between low domestic and high international prices for raw materials and energy.

In November 1993, the Coordinating Committee to Struggle Against Corruption and Organized Crime was established and chaired by President Kravchuk. The Coordinating Committee has been in place ever since, although its effectiveness leaves much to be desired. The first legislation to deal with corruption and organized crime was adopted on 5 October 1995. In April 1997, the categories that were classified as liable to corruption charges were expanded to include parliamentary deputies and local officials.

During the 1994 presidential campaign, Kuchma promised to struggle against corruption and reduce the size of the shadow economy, which already represented about 50 percent of the country's gross domestic product. Eight years later and as the end of Kuchma's second term in office looms, the size of the shadow economy remains the same, according to Minister of Internal Affairs Yuriy Smirnov and Tax Administration head Mykola Azarov. A presidential decree based on a 25 January 2001 National Security and Defense Council resolution was adopted to "eliminate" the shadow economy.

A large shadow economy means a huge proportion of funds is diverted from the state to private hands, a process that in turn fuels criminality and corruption. Objective factors in the continued presence of such a large shadow economy remain in place. These include a large bureaucracy of 250,000 officials, many of whom also work "part-time" elsewhere; frequent changes to legislation; 100 state bodies that have a right to inspect a business; and high tax rates.

With the onset of privatization after 1994, the potential for corruption and organized crime expanded greatly. The formerly high-ranking Soviet Ukrainian nomenclature transformed its Soviet-era political influence into economic power. This new economic power was institutionalized as political power and influence through control of private media (state television is controlled by the executive branch) and "pragmatic" centrist parties that first made their presence felt in the 1998-2002 parliament. These new centrist parties, or older genuine ones taken over by oligarchs, are largely based on regional clans.

The former Soviet Ukrainian elite therefore became the bedrock of the government's support through its control of business, the media, and access to state and budgetary funds. In return for political loyalty, officials turn a blind eye to corruption in what has been termed a "blackmail state." If these oligarchic allies go into opposition, politically motivated charges of "corruption" are leveled against them, as with those against Tymoshenko.

A lack of transparency between state actors, pro-regime businessmen, and their political parties bears all the characteristics of a corporate state. Last year, Yevhen Chervonenko, former head of the State Reserve Committee, complained that state reserves "have been a source for many political campaigns" for oligarchic parties. The most sought-after government positions are those that distribute state funds (e.g., portfolios like Social Policy, Health, Education, Privatization, Natural Resources).

Aside from the Coordinating Committee, which is attached to the executive, the 1994-98 parliament created its own committee to "struggle against organized crime and corruption." According to its current head, Our Ukraine member Volodymyr Stretovych, this committee started its work in the newly elected parliament from scratch as it had not received any documents from its predecessor. Stretovych told "Ukrayina moloda" of 1 August that corruption is rampant in the presidential administration, government, and parliament.

On 24 April 1997, the Coordinating Committee established the National Bureau of Investigation, modeled on the FBI. Parliament never supported its creation, and it was shut down in December 1999. Ukraine already had departments to combat corruption and organized crime within the Ministry of Internal Affairs (MVS) and the Security Service (SBU). But their usefulness has also proven to be minimal as they have themselves become involved in criminal activities.

The discrepancy between official and actual policies in the struggle against corruption and organized crime could be seen in the "Clean Hands" campaign launched in February 1998. "Clean Hands" was launched under Western pressure after widespread publicity surrounding the misdeeds that plagued the Lazarenko government (July 1996-July 1997). Not surprisingly, it was quietly forgotten.

On 28 April 1998, the executive adopted a far-reaching "Concept For The Struggle Against Corruption" that was to last until 2005, though the plan gave way to further government measures in July 2000 when its ineffectiveness was recognized. Such long-term Ukrainian programs, which have also been adopted in other fields, resemble Soviet-era five-year plans both in the way in which they are constructed and their lack of implementation because of their purely cosmetic character.

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