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Corruption Watch: November 22, 2001

22 November 2001, Volume 1, Number 4
By Roman Kupchinsky
"A poll conducted by ROMIR-Gallup International and reported by Interfax on 8 November found that 51 percent of Russians do not trust the Interior Ministry while 41.4 percent do. This was 3 percent higher than in a comparable poll conducted in March 2001, the news service said." ("RFE/RL Newsline," 9 November 2001)

Similar and even more alarming statistics can be found for most postcommunist countries in Eastern Europe, once the most heavily policed countries in the world. The police in these countries today are by and large seen as part of the problem of corruption and rarely as the solution.

In a recent study carried out by the Czech branch of Transparency International, results showed that the most corrupt institution in the Czech Republic appears to be the police. New scandals in Russia and Ukraine point to the Interior ministries as the protectors of criminal organizations in their countries. And despite numerous campaigns to clean up the police force (the Moscow police recently began another such drive), the results often amount to nothing more then a series of statistics on how many bribe-taking traffic cops were fired, or burglars apprehended, rattled off by a senior MVD official.

Lacking rigorous oversight and effective internal affairs departments, many underpaid police officers of the former USSR have chosen to go the route of corruption. At the same time, their supervisors in the MVD as well as ministers and their deputies have taken advantage of large-scale criminalization of society and many have allowed themselves to be used by the new criminal/governmental elite.

The net effect of this is a corrupt upper echelon among police which demands that cops on the beat be honest and vigilant in fighting street crime. The public demands safe streets, and politicians react to these demands. Thus most anticorruption campaigns in the former Soviet Union have centered on stopping petty bribe-taking -- for speeding tickets and payoffs to cops by street gangs and burglars -- while ignoring massive graft at the top. The logic is simple: Most people are concerned with their own safety and their own property, and high-level corruption is something which does not impact upon them directly.

As Stephen Handelman points out in his excellent study of crime in Russia, "Comrade Criminal," criminality in Russia is so ingrained that: "To understand where Russia is heading, it is worth looking at the trauma of Italy, which discovered in 1994 that for more than three decades its prosperity had depended upon a secret alliance between organized crime, government and industry. Russia, with a weaker and more unstable central government and a long tradition of official misbehavior under communist rule, looked certain to surpass Italy. It would be even harder to root the comrade criminal out of his place at the center of Russian society."

Large-scale smuggling of opium from Afghanistan into western Germany has intensified of late, and Western experts suspect that the Taliban have been dumping their narcotics stockpiles in order to raise cash needed to buy munitions for the war. The price of raw opium in Afghanistan before the 11 September attacks on the U.S. was $700 per kilogram but has fallen as low as $100. It is currently $300 a kilo, according to the UN Drug Control Program in Vienna.

One of the major routes used by smugglers, dubbed the "Silk Route," begins in Afghanistan and winds its way through Turkmenistan, Kazakhstan, Russia, and Ukraine to Poland and then on to Germany. The other path to Western Europe is the Balkan route: from Afghanistan to Iran and then on to Turkey, Bulgaria, and the former Yugoslavia before heading into Hungary and Austria. (This route also can veer left from Turkey and go via Albania to Italy, according to the 14 November edition of "The Wall Street Journal Europe.") Both routes require an elaborate organization of transport to move the drugs many thousands of kilometers with the aid of organized-crime multinationals.

Recent statistics from Bulgaria show that between 13 August and 13 November, 492 kilograms of heroin was confiscated. That figure represents 50% of the expected total for the year.

The "Tehran Times" on 12 November reported that Iranian police in the northern province of Golestan have confiscated 1,609 kilograms of narcotics since March. This consisted of 819 kilograms of opium, 212 kilos of heroin, and other substances. Meanwhile, Iran's official state news agency, IRNA, reported on 13 November that 30 kilograms of hashish and 70 kilograms of heroin were seized from traffickers in the past three months in the city of Qom, 130 kilometers south of Tehran.

Former Bosnian Serb Justice Ministers Cedo Vrzina and Milan Trbojevic have been charged with corruption and "overstepping their authority." The Interior Ministry says that both used public funds to cover private expenses. This makes a total of five former ministers from ex-Prime Minister Milorad Dodik's cabinet facing charges of corruption.

In a report released on 15 November, the National Service for the Fight Against Organized Crime said that more than 100 armed gangs of organized criminals, each with nearly 500 members, are operating across the country, AFP reported. The report does not include the capital, Sofia. It also says Bulgarian gangs are in contact with mafias in all parts of Europe and in Latin America. While 94 percent of those involved in organized crime are Bulgarian, the gangs also include nationals from Russia, Turkey, Albania, and Arab countries. ("RFE/RL Newsline," 16 November 2001)

Police in Kazakhstan detained three young men in Almaty late on 12 November on suspicion of membership in the banned Hizb ut-Tahrir party, RFE/RL's Kazakh Service reported. Police also confiscated quantities of leaflets calling for the overthrow of the Kazakh government. Hizb ut-Tahrir aims to establish by peaceful means a caliphate on the territory of the five post-Soviet Central Asian states. Four alleged Hizb ut-Tahrir members were tried and sentenced in Zhambyl Oblast in May of this year.

The proposed budget bill for 2002 in Lithuania aims to slash $9 million from law-enforcement agencies; $4.7 million from the police, $2.7 million from the courts, and $ 1.25 million from the Prosecutor's Office, according to ELTA news agency. President Adamkus and Prime Minister Brazauskas were against such cuts, the agency added.

The Audit Chamber of the Russian Federation is conducting a "very serious" audit of the Kremlin Property Department, known as the "Upravdelami." That department is best-known for the arrest in New York of its former director, Pavel Borodin, amid Swiss charges that he took $30 million in kickbacks in exchange for lucrative construction contracts related to the Swiss construction firm Mabatex.

The investigation is seen as a test of the Audit Chamber's ability to rein in the Property Department. The current chairman of the Upravdelami, Vladimir Kozhin, told "Vedomosti" newspaper that, "We are getting rid of everything that has stuck." However, Kozhin refused to provide a list of Upravdelami's 180 subsidiary companies, saying: "Our list is known to those who need to know." In the past, many of Upravdelami's subsidiaries have used the parent company's name to intimidate suppliers and local authorities, forcing the Upravdelami to release a blacklist of companies that had been liquidated but who continued to use the old relationship illegally.

Five men from the North Caucasus Republic of Karachayevo-Cherkessia said to have been trained by Khattab, an Osama bin Laden associate, were convicted of terrorist plots in Stavropol on 14 November and sentenced to between nine and 15 years in prison. They had been accused of plotting bomb attacks on Russian cities and of membership in illegal armed groups. They were arrested near Stavropol in early 2000 before they could carry out their alleged plans.

According to an article in "Nezavisimaya gazeta" on 9 November, recent efforts by the authorities to step up enforcement of tax laws and to combat corruption has had the unintended consequence of impelling ever more Russian businessmen to park their money abroad, out of the reach of the government. That, in turn, has kept the rate of capital flight stuck at its current level of $20 billion a year, the paper said. ("RFE/RL Newsline," 14 November 2001).

Mikhail Delyagin, the Moscow Globalization Institute director, said in an interview published in "Obshchaya gazeta" on 8 November that the anticorruption campaign launched by prosecutors looks more and more like a struggle among political clans, with the new St. Petersburg clan around Putin struggling to take property away from the groups that prospered under former President Boris Yeltsin. Delyagin, who has advised Putin in the past on how to fight corruption, said Russia needs an independent agency like the American FBI to do so. ("RFE/RL Newsline," 14 November 2001)

The head of the police forces of the Serbian Interior Ministry, General Milorad Simic, has said that the police are determined to root out corruption within their own ranks, adding that 25 policemen have been arrested on corruption charges in the first nine months of this year, Belgrade Radio B92 reported on 18 November.

Simic said 173 criminal charges had been filed against 161 policemen while 791 policemen had been subject to disciplinary procedures -- 588 of whom were involved in gross misconduct, while 203 were involved in minor offences.

Simic went on to say that 64 policemen have been dismissed since the beginning of the year, while 72 policemen have agreed to leave the service voluntarily.

Turkmen President Saparmurat Niyazov strongly reprimanded the head of the Turkmen border service, Lieutenant General Turkish Termyev. According to Interfax on 14 November, sources in the presidential administration stated that Termyev was penalized for "grave drawbacks in his work and a careless attitude to organizing the operations of the service." The border chief was warned that if the shortcomings are not amended in a month's time, he will be dismissed from his job.

President Niyazov also issued decrees to dismiss and strip the ranks and benefits of the Internal Ministry's chief of investigations, Colonel Gurbangeldy Gandymov, and his deputy, Lieutenant Colonel Khovly Allaberenov. "For a certain fee, the officers covered up crimes, illegally closed criminal cases reducing the perpetrators to the status of witnesses, and at the same time illegally persecuted and intimidated certain innocent people," according to the president.

The Ukrainian parliament failed to pass a law on protection of intellectual property on 15 November, thus opening the way for eventual U.S. sanctions against Ukraine. According to sources in Kyiv, these sanctions will not begin immediately but rather be delayed for one month.

Ukraine has been labeled the largest producer and exporter of pirated optical-media products in Europe. Millions of dollars' worth of pirated CDs and DVDs enter the European market annually from Ukraine. According to sources in Ukraine, just one of the country's 11 pirating facilities involved in their production remains. But other sources claim the large facilities have merely gone underground and that the volume of pirated items has not decreased substantially.

The head of the Ukrainian parliament's anticorruption committee, Yuriy Karmazin, sent a letter on 3 August to the country's prosecutor-general, asking him to reverse a Ukrainian court decision and return the UkrNaftoProdukt company to state ownership. Karmazin also requested of Prosecutor-General Mykhaylo Potebenko that prosecutors reverse on constitutional grounds a decree by the Cabinet of Ministers from 30 January 1998 that formed the company.

This marks another public scandal in the oil industry involving the Cabinet of Ministers, gangsters, regional political bosses, and possibly the highest leadership in Kyiv.

UkrNaftoProdukt was formed as a joint-stock company to take into receivership a nearly bankrupt company by the same name and also in accordance with the Presidential Decree on Privatization of 1997. The new company was to involve itself in domestic business in Ukraine to supply the country's oil needs.

The old UkrNaftoProdukt was a unique company. It failed to make money in the energy sector. In 1996 it failed to repay a $19.5 million debt that was guaranteed by the state. Thus the decision to roll the old company into a new entity. It is not clear whether there was an investigation into why the company almost went under, but stranger things have occurred in the Ukrainian energy business.

From the very beginning things did not go by the book. A portion of the start-up capital for the new company came in the form of stakes in profitable regional oil companies from the Crimea and Kyiv, and an Odessa-based company called Eximnaftoprodukt. These shares were transferred to the new company on the condition that they were not legally theirs to sell or use as collateral. Then the State Property Fund of Ukraine decided to sell off 44.19 percent of the new holding company. The buyer was an unknown company, Concern 'Naftoprodukt Ukrainy Ltd.,' which had foreign investment included in its capital.

Soon even stranger transactions took place. On 21 September 2000, UkrNaftoProdukt borrowed more than $3 million for one month (from 25 September until 27 October) at an annual interest rate of 12 percent from a Cyprus-based company, Bevalo Investments Ltd. As collateral, it turned over to Bevalo stakes in the three regional energy companies (from Crimea, Kyiv, and Eximnaftoprodukt).

On 5 January 2001, Bevalo Investments sold that entire batch of shares -- apparently now collateral for a loan that was never repaid -- to Medis Holdings S.A., a company registered in Geneva, Switzerland, on 26 September 2000 with assets of $70,000.

Evidence that something was amiss soon surfaced. Two members of the supervisory board of UkrNaftoProdukt, S. Zaytsev and Yu. Shumacher, were also representatives of Bevalo Investments. Shumacher was also a close friend of the first vice president of UkrNaftoProdukt, A. Kosmin, who worked for the Odessa Maritime Transport Bank which is owned by Oleksandr Zhukov who was arrested in Italy for illegal arms trafficking to Croatia (see "Crime, Corruption, And Terrorism Watch," vol. 1, no. 3, 16 November 2001).

Kosmin is a colorful figure who has held many different and senior posts in Odessa. For many years he worked as the deputy director of the Odessa branch of Bank Ukraine (his boss, N. Smarus, was found dead under strange circumstances). Kosmin then became the director of the Marine Transport Bank, from which he became the head of the financial department of the Odessa City Council's then-deputy mayor under R. Bodelan. His last position was deputy director of UkrNaftoProdukt.

Soon the supervisory board of UkrNaftoProdukt was shuffled to include -- aside from Shumacher (concurrently a representative of Bevalo Investments) and S. Zaytsev, also from Bevalo -- a certain N. Batrak, a lawyer for Syntez Oil Company (another firm owned by the resident of an Italian prison, Oleksandr Zhukov). Other new members of the supervisory board included the director of UkrNaftProdukt, Yu. Kolupaylo, and the director of Syntez Oil, V. Yurdyk. Even the lawyer who had defended the interests of Bevalo Investments, Ye. Lamzina, was hired to represent and provide counsel to UkrNaftProdukt.

Despite the promises of Ukrainian President Leonid Kuchma to investigate this case, little has been done. According to Prosecutor-General Mykhaylo Potebenko, the case was reviewed at a meeting of the Coordinating Committee Against Corruption and Organized Crime -- "but the case is still being investigated." The Odessa Oblast prosecutor, Mykhaylo Kosyuta, stated: "It is difficult for us to understand the privatization of UkrNaftProdukt since many events are being cooked up in Kyiv, in the State Property Fund..."

The only investigation being pursued by the authorities seems to be by the tax authorities, who have opened a criminal case against Volodymyr Fylypchuk, the director of Eximnaftoproduckt, and, according to the Internet publication "Grani," a close friend of Leonid Minin. Fylypchuk is accused of fraud and tax evasion of roughly 10 million hryvnias (approximately $2 million).

(Sources: "Zerkalo Nedeli," 15 June 2001; a letter from Yuriy Karmazin to Mykola Potebenko of 3 August 2001; "Grani" and "Crime, Corruption, and Terrorism Watch" sources in Odessa and elsewhere).


An arms embargo was first imposed on Liberia by the United Nations in 1992 and subsequently tightened in March 2001 to stop arms from reaching Revolutionary United Front (RUF) rebels in Sierra Leone, which is also subject to such an embargo. Thousands of people have died in Liberia's civil war, many of them children. Countless others have been tortured, raped, or maimed during the brutal conflict. Most of the weapons that have found their way into the hands of the RUF originate in Eastern Europe and are sold on the basis of forged documents that declare the weapons as destined for other countries. The documents, called End-User Certificates, are presented by arms brokers to sellers, often governments, before the weapons find their way into the hands of the RUF.

The following is based largely on a United Nations panel of experts report on Liberia made public on 26 October, along with a UN panel of experts report on diamonds and arms in Sierra Leone from December 2000. It also includes information gathered and broadcast by RFE/RL, independent Internet publications in Ukraine and Russia, and interviews with sources in Eastern Europe:

Part 2. "The Hotel Africa"

It is not clear why Leonid Minin kept a vast archive of his criminal activities in his hotel room in Monza, Italy. There were documents which showed that he intended to set up a diamond-exporting chain from West Africa to Russia and China. The more than 1,500 pages of documents -- which included fake End-User Certificates, copies of money transfers, copies of fax messages, and correspondence -- all pointed to his heavy involvement in illegal arms trafficking to Africa.

The most alarming were faxes sent by Valerii Cherny of Aviatrend to Minin and correspondence from Charles Taylor Jr., the son of the Liberian president, to him. Several original End-User Certificates from the Ivory Coast along with bank transfers show that Minin paid $1 million to Aviatrend. The payments were made to Aviatrend accounts at the Alpha Bank in Nicosia, Cyprus, and Chase Manhattan Bank in New York through one of Minin's many offshore companies, Sulico Holdings.

When Valerii Cherny of Aviatrend was interviewed in Moscow by members of the UN panel of experts, he could not explain the multiple copies of the Ivory Coast End-User Certificate. When asked why Minin had paid him $1 million when the approximate market price for the 5 million cartridges was $250,000, Cherny admitted that more arms had been purchased and were stockpiled and waiting to be shipped to the Ivory Coast, but Minin's arrest ended the deal.

Sales of weapons from Ukraine to Africa did not begin with the shipment described above. As early as 1993 Ukrainian arms dealers, working with corrupt Ministry of Defense officials, began large-scale sales of arms to rogue regimes.

A letter dated 12 February 1993 from then-SBU chief Yevhen Marchuk to Ukrainian President Leonid Kravchuk states: "[A]s I have reported to you, the Security Service, acting upon a request of the Prosecutor-General of Ukraine, is investigating the circumstances surrounding the sale by the Defense Ministry of arms and military equipment to the Panamanian company 'Global Technologies International Inc.' [a company controlled by Oleksandr Zhukov from Odessa R.K.].... I would like to inform you of the actions and statements of certain ranking members of the Armed Forces of Ukraine which can compromise you personally as well as the state policy of Ukraine. And in the event of a criminal case, they can become the basis for questioning you as a witness in regard to two resolutions you made concerning military technical cooperation with a foreign company in conversations with the president of that company, Mr. Streshinsky."

The sale that Marchuk was referring to was of 5 million rounds of ammunition, 300 machine guns, and other assorted weaponry worth $4 million which was listed on neither the sales contract nor the End-User Certificate. The weapons were transported to the port at Oktyabrsk and loaded onto containers belonging to Global Technologies International before being shipped. A second transport of arms left Ukraine in December 1993 with the intervention of V. Palyvoda, the head of the president's security detail, who stated that this shipment had the president's approval. In both cases, Marchuk informed President Kravchuk, officers from the Defense Ministry demanded bribes from Global Technologies of $365,000 but agreed to $200,000. One of the generals from the Defense Ministry, Oliynyk, was investigated later by the Prosecutor's Office, but soon afterwards the investigation ended for no apparent reason.

In his letter to Kravchuk, Marchuk does not mention where the weapons were destined, but there existed a UN embargo on arms to Croatia at the time, and many reports were circulating of Ukrainian ships breaking the embargo and bringing in substantial weaponry to the region. Zhukov was arrested in Italy on 5 August 2000 and charged with illegal arms trafficking to Croatia in 1993.

On 13 March 1999, some 68 tons of weapons arrived at Ougadougou in Burkina Faso. That shipment included 715 boxes of weapons and cartridges and 408 boxes of cartridge powder. There were also anti-tank weapons, surface-to-air missiles, and rocket-propelled grenades and their launchers. The weapons were part of a contract signed between a Gibraltar-based company which represented the Ministry of Defense of Burkina Faso, Chartered Engineering and Technical Services, and the Ukrainian state-owned company Ukrspetsexport. The End-User Certificate was dated 10 February 1999 and was issued by the Ministry of Defense of Burkina Faso and signed by Lieutenant Colonel Gilbert Diendere, head of the Presidential Guard of Burkina Faso.

Despite denials by Burkina Faso officials contending that the weapons did not leave their country, the bulk of them was trans-shipped within a few days to Liberia on board a BAC-111, with Cayman Islands registration VP-CLM and operated by a Monaco-registered company called LIMAD. The owner of the BAC-111 was Leonid Minin. This was the same airplane that Minin let Liberian President Charles Taylor use as a presidential jet between 1998 and 1999, when it was not transporting arms destined for the RUF.

Minin was part of an intimate group of arms traders and illicit diamond dealers close to President Taylor. The key individual in this group is a wealthy Lebanese businessman, Talal El-Ndine, who was the paymaster of the group. He pays people who smuggle diamonds out of Sierra Leone and mercenaries (including Ukrainians and South Africans). El-Ndine also pays the pilots and crews of the aircraft that bring in the weapons. These pilots almost always stay in the Hotel Africa in Monrovia.

The manager of the Hotel Africa is a Dutch national, Gus van Kouwenhoven, who began dealings in Liberia in the 1980s. Also a member of President Taylor's inner circle, he organizes the transfer of weapons from Monrovia into Sierra Leone using roads built and maintained for timber extraction (van Kouwenhoven and Minin both have interests in timber projects in Liberia).

A third member of the inner circle is Simon Rosenblum, an Israeli businessman based in Abidjan who has logging and construction interests in Liberia. He carries a Liberian diplomatic passport and his trucks carry weapons from Robertsfield to the Sierra Leone border.

But the circle of people involved in the illicit sales of arms spreads far from Monrovia. It includes an entire infrastructure of middlemen, pilots, crews, and government officials from different countries who participated in some way in the operation. (To be continued).