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Corruption Watch: November 12, 2001

12 November 2001, Volume 1, Number 2
Prior to the 1979 Islamic revolution, Iran had one of the most-developed economies in the Middle East. It also suffered from a dismal lack of social justice with most of the wealth of the nation in the hands of the Pahlavi family. The call for a "just society" brought the new regime to power, but corruption soon negated these early slogans.

By 2001, 80 percent of Iran's wealth was to be found in the hands of 15 percent of the population; the value of the national currency, which remains pegged to the U.S. dollar, has been devalued to less than 1 percent of its pre-revolution value; black marketeering in consumer goods and currency, as well as smuggling, had become rampant by the end of 2001; corruption in high places began flourishing.

In April 1998, Gholamhossein Karbaschi, the 47-year-old mayor of Tehran and a supporter of the relatively reformist President Mohammad Khatami, was arrested on charges of corruption. He was picked up on his way to give evidence in an investigation into the embezzlement of public funds by Tehran city officials. Soon afterwards, Minister of Interior Abdollah Nouri expressed grave concern over the mayor's detention, stating that such treatment called into question the competence of judiciary officials investigating the case.

Karbaschi was accused of embezzlement, fraud, and mismanagement of public funds. As mayor of Tehran for the past eight years, he had been credited with transforming the capital by building low-cost housing and financing public parks. According to independent analysts, Karbaschi might have been involved in the selling of building contracts but the charges against him were politically motivated. He was found guilty in May 1999, sent to prison, and released in January 2000 after the reported intervention of former President Ali-Akbar Hashemi-Rafsanjani. It is believed that Karbaschi signed a pledge promising to stay out of politics for up to five years in return for his freedom.

This was not the first trial of a municipal official on corruption charges. In 1997, several district mayors were detained on charges of corruption. Some were mistreated in prison, a fact that resulted in the arrest of a number of security officials and in the removal in September 2000 of the security police chief, Brigadier General Mohammad Reza Naqdi.

Some of the major scandals in 2000-01 have centered around charges of corruption within the Ministry of Oil. According to Ayatollah Janati, the secretary of the Guardian Council, "In the oil empires, millions and millions are plundered and deposited in foreign accounts." The National Iranian Oil Company is one of major suspects in recent months. It has been accused of selling land at one-eighth of its value to relatives of ministers and other officials.

In December 2000, it was revealed that more than three dozen Iranian judges and bailiffs were arrested in a probe of corruption and bribery in Iran's court system.

The scandal around the Paris branch of Sepah Bank in 2000 was to rock the nation. Some $12 million was embezzled from the Paris branch of that bank. Unauthorized payments of $12.4 million were made to an individual who had a currency-exchange shop and was not a customer of the bank, however the bank was given no collateral or guarantees. The manager of the Paris branch fled, was found, arrested, and sent to Iran -- but was never put on trial.

Three Iranian customs officials were sentenced to death in July 2001. They were found guilty of having received $1.2 million each for providing fake certifications on carpets at Tehran's Mehrabad airport.

The Iranian Parliament has a State Auditing Tribunal as well as an Economic Committee that were formed to combat corruption. However, the vice chairman of the Economic Committee says: "According to the annual budget bills, banks, credit institutions, and insurance companies were traditionally exempted from the state auditing act. Our inquiries and investigations, however, show us that big embezzlements in the banks and large-scale financial frauds and misappropriations in insurance companies are largely due to this exemption."

Despite the announcement of a major anticorruption campaign in January 2000, little seems to have changed. Press freedoms have been stifled by the government and, without media exposure, corruption will most likely continue unabated.

Ukrainian President Leonid Kuchma created something of an incident when he blamed banks in the Baltic countries of being a "corridor" for money laundering. The statement was made at an anticorruption symposium in Kyiv in October. The Latvian foreign minister quickly responded, expressing his "surprise," while the Latvian Foreign Ministry issued a statement saying that the charges are unfounded if President Leonid Kuchma had Latvia in mind.

Estonian sales of amphetamines and metamphetamines to Finland is big business, given the number of tourists from Finland who come to Estonia to drink cheap vodka and buy cheap drugs. The cost of amphetamines in Estonia is one-third to half of that in Finland, and prices have been dropping for heroin in the past nine months. In 1996, heroin sold for $70 per gram. By June 2000, the price had dropped to $20-30. According to "Jane's Intelligence Review," the Estonian underground has forged relations with Finnish and South American crime syndicates, presumably for drugs as well as other operations. In February 2000, over 5 million illegal cigarettes from Russia were confiscated on the Estonian border.

The chairman of the Riga Regional Court's Criminal Case Council, Janis Laukroze, was gunned down and killed by seven shots in the courtyard of an apartment building in central Riga on 15 October. He had presided over the case of three Russian National Bolsheviks who seized the steeple of Riga's St. Peter's Church in November 2000 as well as drug-peddling and corruption trials. A special joint task force headed by Prosecutor-General Janis Maizitis will investigate the murder. A reward of $16,000 has been offered for information that leads to the apprehension of the killer or killers. ("RFE/RL Baltic States Report," 1 November 2001)

The fourth working group to write a new criminal-process law was established in Latvia at the beginning of 2001. This has proved to be one of the greatest challenges facing Latvian lawmakers. The government declared that the first draft of the criminal process law was inadequate nine years after the first working group was set up. Latvia needs this law -- along with laws on conflict of interest, on initial declaration of property, on the financing of political parties, and a law on the formation of an anticorruption office -- in order to speed up its admission into the EU. According to the Latvian newspaper "Diena" of 11 October, the law on due process will include the principle of legal presumption and states that those suspected of engaging in tax evasion, corruption, or money laundering will have to prove their innocence, instead of the state having to prove their guilt.

The Lithuanian Drug Trade Investigation Division has confirmed that heroin is entering the country in increasing quantities. The drugs are brought in from Kazakhstan, Tajikistan, and Afghanistan while heroin refined in Ukraine is being exported through Lithuania to Scandinavian countries. This is the first mention of Ukraine being used as a refining point in the drug trade. According to RFE/RL sources in Ukraine, much of the heroin from Central Asia is brought to Ukraine by Crimean Tartars. Ukrainian law-enforcement agencies claim they have no evidence of refineries in the Crimea or elsewhere in Ukraine.

Oleksa Romashko, the deputy head of the Ukrainian Securities Commission and head of the commission's inspections department, was found murdered in the hallway of his apartment building on the morning of 29 October. He had been stabbed twice and reportedly had a gunshot wound to the head. Romashko was involved in investigating the circumstances surrounding the state sales of Donbasenergo, Donetskoblenergo, and Luhanskoblenergo, three regional energy-supply companies that had been scheduled for privatization but were prevented from sale by Romashko's inspections department. The Prosecutor's Office said it is considering the possibility that it was a contract killing. Former Deputy Prime Minister Yuliya Tymoshenko had made it a part of her program to privatize those regional energy companies, but this was strongly resisted by members of parliament from the so-called "oligarch" factions. When Tymoshenko was forced out and arrested on corruption charges stemming from her past role in United Energy Systems of Ukraine, the regional energy companies were put on the block but sold for suspiciously low prices. Romashko began an investigation into the matter, but his death has halted the investigation, for the time being.

The deaths of parliamentary Speaker Ivan Plyushch's driver, Oleksandr Skliar, and his bodyguard, Pavlo Poteryako, were reported on 22 October. Their bodies were found in a Kyiv park. The Russian news agency Novosti reported that both had been shot dead, while Ukrainian health officials stated that both men had died of either heart attacks or alcohol poisoning. The Kyiv city morgue gave a preliminary diagnosis of death due to heart attack. The Ukrainian Interior Minister, Yuriy Smirnov, stated in an interview for the daily newspaper "Fakty" that, "There is no crime there, and no need for any investigation."

Ukrainian state television questioned the official version of the death of journalist Ihor Oleksandrov in a 25-minute film aired on 28 October. The government's version of the murder of Oleksandrov was presented by Prosecutor General Mykhaylo Potebenko, who said that Oleksandrov was murdered by a homeless man who mistook him for Oleksandrov's lawyer, Oleksandr Omelyanov. The TV program presented the views of two former police officers who had appeared on Oleksandrov's TV show in the past. They believed that the murder was committed by the same group which has committed contract killings in the region in recent years. It was also pointed out that any compromising materials on illegal activities in the Donetsk Region, videotapes, audio tapes, and computer disks had disappeared from Oleksandrov's home. Oleksandrov was known for his investigative reporting on corruption in the Internal Ministry (MVD) of Donetsk Oblast.

By a rare, unanimous vote on 21 October the State Duma called on the Russian Prosecutor's Office to investigate allegations of corruption by a senior official in the Interior Ministry (MVD), Lieutenant General Aleksandr Orlov, an aide to former Interior Minister Vladimir Rushailo. Orlov is alleged to have provided protection to contraband traders while heading the ministry's anticorruption crime directorate, the RUBOP. The Russian press reported that Orlov had fled the country under an assumed name immediately after Rushailo was removed from his post to head the Security Council. Orlov is presumed to be living in Israel. Orlov joined the RUBOP in 1993, and in 1996 became its deputy head. It is alleged that he then involved the unit in business conflicts between debtors and creditors in which the RUBOP took a 50 percent cut of debts collected on creditors' orders. The newspaper "Moskovskii Komsomolets" claimed that Orlov provided protection to the business groups that seized the Kachkanar Vanadium Plant and St. Petersburg Shipping.

Nikolai Aksenenko, the Russian railways minister and an influential member of former President Boris Yeltsin's inner circle, "the family," was charged by prosecutors in mid-October with "abuse of power" and told not to leave Moscow. The "Kommersant" newspaper said that Aksenenko was accused of misusing state funds leading to the loss of millions of rubles. The railroads are said to be a $10 billion-a-year operation carrying 80 percent of the nation's cargo and accounting for 90 percent of the turnover in the Russian freight market.

In addition to the Railways Ministry, the state Fisheries Commission and the Customs Committee have also come under scrutiny recently. At the Fisheries Commission, no current officials are targets of investigation; but the former head of the committee, Yurii Sinelnik, and his first deputy, Mikhail Dementyev, are suspected of taking bribes for handing out fishing quotas. The state emergencies minister and the leader of the Unity party, Sergei Shoigu, checked into a hospital on 30 October complaining of high blood pressure. His ministry had come under scrutiny recently. The press minister, Mikhail Lesin, left for vacation on 31 October after the Audit Commission began looking into his ministry.

The Russian Prosecutor's Office has asked the Duma to lift Deputy Vladimir Golovlev's parliamentary immunity. The move came on 30 October as part of a corruption investigation stemming from Golovlev's activities as head of the state property committee in the Chelyabinsk Region in the early 1960s. Golovlev is the deputy chairman of the Duma's budget committee. He is a renegade member of the Union of Right Forces (SPS) faction and is suspected of having committed financial abuses while in Chelyabinsk.

Deputy Tax Minister Viktor Zubkov was appointed to head the newly created Financial Monitoring Committee (FMC) by Russian President Putin on 31 October. The FMC will work under the Finance Ministry and will start activities on 1 February 2002. Its brief is to fight money laundering and enforce compliance with a new law on money laundering that takes effect the same day. The FMC will employ 300 people in Moscow and 100 throughout the regions. Roughly $20 billion leaves Russia every year, some of which is laundered criminal money and some capital flight.

Georgian President Eduard Shevardnadze fired his entire cabinet on 1 November in the wake of a security and media scandal. Thousands of demonstrators, mostly students, had taken to the streets demanding his resignation. Many of the demonstrators blamed Shevardnadze for large-scale corruption in their country. An attempted raid by 30 members of the security service on the independent TV station Rustavi 2 earlier in the week prompted the political showdown. Authorities said they suspected tax evasion at the station. Rustavi 2 had become popular in Georgia for its regular criticism of Shevardnadze's government and corruption in the country. Parliamentary Speaker Zurab Zhvania, who also resigned in the midst of the crisis, told Russian state network RTR that the raid was an example of the degree to which official corruption had infiltrated the Shevardnadze government.

South Korean businessman Choi Soon-young, former chairman of the Shindongah group and Korean Life Insurance Company, admitted giving $10 million in bribes to President Nursultan Nazarbaev of Kazakhstan. Choi testified that he authorized the payment to Nazarbaev in 1996 and that it was intended to help Shindongah's diamond processing and other business ventures in Kazakhstan. According to the AP (6 November 2001), Choi testified before a Seoul appeals court on 26 October and said that he instructed his subordinate, Kim Jong-eun, to deliver the money to Nazarbaev. Kim has denied any role in the scheme and claims that Choi delivered the money himself. Lev Tarakov, head of Nazarbaev's press service, said he was unaware of the accusations and refused to comment.

A United Nations report released on 26 October documents in detail how Ukrainian, Slovak, and Kyrgyz criminals continue to systematically send huge shipments of arms to Liberia despite an arms embargo first imposed by the UN in 1992. "The arms flow into Liberia make a mockery of UN sanctions," said Joost Hiltermann, executive director of the arms division of Human Rights Watch. Among others implicated in this report is Odesa gangster Leonid Minin, presently under arrest in Italy for selling arms to Croatia during the UN embargo in 1993; Sergei Denisenko, a Russian citizen living in the United Arab Emirates; and Moldovan Victor Bout and his brother, Sergei. More details on this case will appear in the next issue of "CCT Watch."


By Roman Kupchinsky

Nuclear, biological, and chemical (NBC) weapons have the potential to become the single greatest threat to humanity in the 21st century. A small batch of powerful, antibiotic-resistant biological weapons in the hands of any one of a myriad of terrorist organizations can create havoc unheard of in modern history. These are weapons which can be produced at relatively low cost (about $1.5 million); they are compact and can thus be distributed without ICBM delivery systems; and they can be highly effective.

The world's largest known stockpiles of biological weapons are in the United States, Russia, and Iraq.

But a strategically important stockpile with the innocuous name of Vozrozhdeniye, or "rebirth," has been located in Uzbekistan, on an island in the Aral Sea. That unguarded island was used as a biological-weapons testing site for Soviet scientists. Among the bio-weapons tested was the Soviet form of anthrax, designated as the 836 strain. This strain, according to Jonathan Tucker of the Monterey Institute of International Studies, is highly virulent and resistant to common antibiotics. The United States has agreed to help Uzbekistan clean up the cache of anthrax spores buried on the island, but this by itself is only one step in preventing such weapons from falling into the hands of terrorists.

According to Tucker, there are 1,500 germ banks worldwide. And while many of them do not necessarily stockpile dangerous items, 46 are known to have stocks of anthrax bacilli. The former Soviet Union produced about two tons of anthrax a day at its facility in Stepanagorsk in Kazakhstan. For his part, Ukrainian President Leonid Kuchma said on 18 October 2001, "We do not know for sure if bacteriological weapons were stored in Ukraine during Soviet times and, if they were, where they are now." According to the RFE/RL Bureau in Kyiv, no biological weapons are presently stored in Ukraine.

But stockpiles are only part of the problem. The other great danger comes from the illegal production of bio-weapons. Thousands of unemployed Russian scientists who worked for Biopreparat, which ran the Soviet Union's germ-warfare program and was disbanded in 1992, could be recruited to recreate the deadly strains. In recent testimony to a United States congressional committee, Ken Alibek, the deputy director of Biopreparat, stated that some 50 Russian scientists possessing secrets about anthrax production cannot be located.

A former UN bio-weapons inspector, David Franz, who had served as chief inspector in Iraq, recently stated that it is almost impossible to gauge the extent of Iraqi and Russian germ-warfare production today. In Iraq, bio-weapons factories are disguised as vaccine plants. Franz reported seeing an enormous plant in Russia which was producing liquid anthrax.

The smuggling of nuclear materials, including enriched uranium, has troubled law-enforcement officials ever since the collapse of the Soviet Union. Dr. Paolo Sartori, chief of the Italian Interpol office in Bucharest, Romania, revealed in an interview for the Romanian press that Romania has become a transit route for nuclear and strategic materials from the Dniester region and Moldova. "During the last two years many traffickers of nuclear and strategic materials, such as white mercury and cobalt, have been identified and arrested in Romania," said Sartori. The Moldovan interior minister, Victor Catana, has also revealed that multiple organized-crime networks and even intelligence services from various countries have been making arms deals in the Dniester region since August 1998. These deals include such weapons as plastic explosives and ground-to-air Stinger missiles.

Unconfirmed reports from Israel place the head of the so-called "Red Mafia," Semyon Mogilevitch, as having arranged a meeting in Marbella, Spain, between members of his organization with bin Laden associates. According to these Israeli sources, Western intelligence agencies are urging the Spanish police to crack down on such activities.

The arrest of four Georgian men with nearly four pounds of enriched Uranium 235 in their possession in July 2001 in Batumi (see "RFE/RL Corruption and Terrorism Watch," Vol. 1, No. 1) is an indicator that nuclear smuggling could be shifting to Central Asia. All indicators show that the poorly equipped and often corrupt police forces and intelligence services in the former Soviet bloc will not be able to handle the challenge of NBC smuggling alone.