Corruption Watch: October 3, 2005

Former Ukrainian Security Service (SBU) head Oleksandr Turchynov, who was forced out of office when the government of former Prime Minister Yuliya Tymoshenko was dismissed on 8 September, recently spoke to RFE/RL in Kyiv about the government's stalled drive to combat corruption. Turchynov charges that President Viktor Yushchenko himself ordered a halt to some of the SBU's investigations.

Ukrainian Interior Minister Yuriy Lutsenko announced during a 23 September press conference in Moscow that he has been informed by the Russian Interior Ministry that Ihor Bakay, wanted by Ukrainian law enforcement agencies for allegedly defrauding the Ukrainian state of $300 million, was granted Russian citizenship by a special decree from Russian President Vladimir Putin. Putin's decree granted Bakay citizenship for his contributions on "behalf of Russian culture and art."

Lutsenko commented that he too had come to make a contribution to Russia by bringing with him some 100 volumes of evidence of Bakay's wrongdoings, but conceded that he stood little chance of success. "If this is the Russian decision, then we can do little to change it" he stated.

Ihor Bakay, the head of former Ukrainian President Leonid Kuchma's property management office, resigned as the head of Naftohaz Ukrayina, the state energy monopoly, in 2001. Lutsenko said that among the charges against Bakay was defrauding the state in gas-purchase deals with Russia's Gazprom and Turkmenistan. Lutsenko also stated at the press conference that Kuchma had "fronted for Bakay and covered up his activities."

Responding to the Bakay affair, Kuchma was quoted by the website of "Ukrayinska pravda" as saying that "Bakay is a talented manager, but he does not know when to step on the brakes."

Putin Reportedly Upset By Gas Probe

The investigation into allegedly fraudulent practices in the transport of Turkmen gas to Ukraine by two companies, Eural Trans Gas and RosUkrEnergo, that was begun by the SBU in May, was halted by President Viktor Yushchenko's direct order, former SBU head Oleksandr Turchynov told RFE/RL on 20 September.

Turchynov stated that Yushchenko told him in mid-August to stop "persecuting my men" and that the investigation of RosUkrEnergo was "creating a conflict with Russian President Vladimir Putin." Turchynov would not elaborate on why Putin was so upset by the investigation.

Soon after Turchynov's removal as head of the SBU on 8 September, the website Obozrevatel reported on 21 September that the SBU officer in charge of the investigation of RosUkrEnergo, Ondriy Kozhemyakin, was transferred from the case to other duties. Turchynov confirmed this information for RFE/RL.

According to Turchynov, Yuriy Boyko, the former head of Naftohaz, was interrogated twice by the SBU in conjunction with the RosUkrEnergo case and was about to be arrested when Yushchenko ordered Turchynov to let him go. Soon afterward, Boyko, now the head of the Republican Party, signed a pre-parliamentary election pact with former Prime Minister Anatoliy Kinakh's party, which supports the pro-Yushchenko faction.

Turchynov told RFE/RL that during the second interrogation of Boyko, investigators confronted him with evidence that he had received kickbacks from the RosUkrEnergo scheme.

As to the activities of Oleksandr Tretyakov, Yushchenko's former top adviser, Turchynov claims that Tretyakov in fact became the person responsible for overseeing the functioning of the RosUkrEnergo gas scheme after Yushchenko's election. According to a report released by Prosecutor-General Svyatoslav Piskun on 22 September, Tretyakov was found innocent of any wrongdoing.

Turkmenbashi And Kickbacks For Gas

Turchynov also said the SBU had turned to the Turkmen security service for information concerning the large sums of money allegedly being laundered to Turkmen leaders from this gas-transportation scheme. Soon after the request was made, Turkmen President Saparmurat Niyazov, who is also known as Turkmenbashi, ordered the arrest of Yolly Gurbanmuradov, the deputy prime minister in charge of energy and gas.

RFE/RL reported in June that Turkmen National Security Minister Geldymukhammed Ashirmukhammedov told Niyazov and the cabinet of ministers more about Gurbanmuradov's alleged activities. "Yolly Gurbanmuradov, at the end of October [2004], received Internet information from representatives of foreign intelligence services about selling Turkmen oil at reduced prices," Ashirmukhammedov said. "After that, he established unofficial contacts with representatives of foreign intelligence services and offered his services to them...." Niyazov also accused Gurbanmuradov of having three wives.

Sources in Kyiv suspect that Gurbanmuradov was arrested in order to silence him because he knew the mechanisms of how money from the RosUkrEnergo gas-transport scheme was being kicked back to high-level Turkmen officials who were then placing it in offshore banks.

The shakeup in the Turkmen energy sector continued through the summer. In August, former minister and Turkmenneft head Saparmammet Valiev was sentenced to 25 years in prison for embezzlement and other purported crimes. Former Turkmenneftegaz head Ilyas Charyev, who was fired in June, was sentenced to 24 years' imprisonment. In both cases, the sentences were announced although there were no reports that the men had been tried. In September, Niyazov fired Guichmurad Esenov, head of the Turkmenbashi refinery, for alleged corruption and drunkenness.

Khudaiberdy Orazov, Turkmenistan's former central-bank chief and now an opposition leader in exile, told RFE/RL's Turkmen Service that he believes Gurbanmuradov's legal problems are part of Niyazov's attempt to cover up his own business activities.

A report in April 2005 entitled "Turkmenistan: People! Motherland! Leader?" by the Conflict Research Center Studies, a part of the Defense Academy of the United Kingdom, notes: "The president [Niyazov] has made claims that his personal fortune, for the most part stored in European banks, amounts to $3 billion."

Suspects Released

Two former senior officials arrested by the Ukrainian Prosecutor-General's Office on charges of fraud, embezzlement, and inciting a riot were released from prison in September. Ivan Rizak, the former head of the Transcarpathian Oblast and Borys Kolesnykov, head of the Donetsk Oblast Council , are now free, and Kolesnykov has resumed his job as head of the regional council.

On 23 September, Yushchenko announced a pact with the opposition in which he promised to look into an amnesty for those convicted of vote rigging during the 2004 Ukrainian presidential elections. Commentators and law enforcement officials in Kyiv told RFE/RL that it was pointless keeping these people in prison when the individuals who ordered them to rig the vote were never investigated or arrested.

The case of the September 2000 murder of Internet journalist Hryhoriy Gongadze appears to be stalled and the chances of finding and convicting those responsible for ordering the killing of the journalist are slim, according to an appearance on Ukrainian television by Serhiy Holovaty, a lawyer working with the Gongadze family.

During a press conference after being relieved of his position as the head of the SBU, Turchynov stated that the SBU had authenticated the portion of the notorious tape recordings made by Mykola Melnychenko, a member of Kuchma's security detail, which deals with the Gongadze case. The SBU determined that the recordings are authentic and not fragments of conversations spliced together and that the speakers were indeed Kuchma, former SBU head Leonid Derkach, former Interior Minister Valeriy Kravchenko (who is deceased and, according to the official report, committed suicide in February by shooting himself twice in the head) and current parliament head Volodymyr Lytvyn. Earlier the same recordings were authenticated by the FBI.

On the tape, Kuchma tells Kravchenko to "get rid of Gongadze."

According to Ukrainian law the recordings cannot be admitted into court as evidence.

Former Interior Ministry General Oleksiy Pukach, who was in charge of the Interior Ministry special units that followed Gongadze and who is suspected of personally taking part in kidnapping him, is in hiding in Israel according to Turchynov and the Israeli police cannot seem to locate him. Pukach is considered a key link in the chain of men who gave the order to kidnap and kill Gongadze and the perpetrators.

Other suspects wanted on a variety of charges are reportedly hiding in Moscow and in the United States. Former Sumy Oblast head Yuriy Shcherban, wanted on charges of defrauding the state of millions of dollars, is alleged to be hiding in Florida, while Volodymyr Satsiuk, wanted in connection with the poisoning of Yushchenko during the 2004 presidential campaign, is alleged to be in Moscow, as the former head of the Odesa state administration Ruslan Bodelan. Bodelan is wanted on charges of fraud and embezzlement.

Turchynov also pointed out in an interview with the website Obozrevatel that the prosecutor-general's investigation into former National Security Council head Petro Poroshenko's alleged involvement in five separate instances of corruption was "at best a bare minimum," given the evidence collected by SBU investigators into Poroshenko's alleged activities. (Roman Kupchinsky)

Before the 11 September 2001 terrorist attacks on the United States, the international community began adopting a series of anti-money laundering regulations meant to stop terrorist organizations from financing their activities. These measures -- which obviously did not prevent 9/11 from taking place -- were further strengthened after the attacks. Have they been effective in preventing or even reducing terrorism?

Hundreds of pages of elaborate and often confusing rules were created by governments which thereby made banks one of the first lines of defense against terrorists. Bankers were instructed to "know their clients" and to report "suspicious" transactions. How a banker untrained in counterterrorism could recognize a "suspicious transaction" was not explained and was left up to the individual responsible for enforcing these rules in the bank to decide.

The new banking guidelines and regulations were based on the belief that terrorist organizations would use the Western banking system to move large sums of money around. This supposition, however, is proving to be unfounded, and was formulated based only on a few examples of money being sent to some of the 9/11 terrorists by wire transfer using Western banks.

As law-enforcement agencies are coming to realize, terrorists do not need large sums of money for their activities and -- given the nature of the people involved in terrorism -- they do not use Western institutions for this purpose if at all possible and might instead be resorting to traditional hawalas and money couriers.

A report issued in August 2004 by a team monitoring the implementation of UN sanctions against Al-Qaeda, UN Security Council document S/2004/679 found that the costs of the most damaging terrorist attacks were not extravagant:

-- The simultaneous truck bombings of the United States embassies in Kenya and Tanzania in August 1998 are estimated to have cost less than $50,000;

-- The October 2000 attack on the "USS Cole" in Aden, Yemen, less than $10,000;

-- The Bali, Indonesia, bombings in October 2002, less than $50,000;

-- The 2003 bombing of the Marriott Hotel in Jakarta was about $30,000;

-- The November 2003 attacks in Istanbul cost less than $40,000;

-- The March 2004 attacks in Madrid cost about $10,000.

The London metro bombing on 7 July was also an inexpensive operation by any standards. Most experts place the cost at about $25,000 -- including the flights to Pakistan by three of the bombers prior to the attack.

According to a UN Monitoring team, "There are some 32 international and regional organizations working to establish standards and agree to policies to combat terrorist financing." Despite these efforts, terrorist attacks continue and there seems to be little progress in stopping them: Since the 9/11 terror attacks there have been thousands of acts of terrorism worldwide, according to the U.S. State Department. In 2004 alone the U.S. National Counterterrorism Center listed 651 "significant acts of terrorism."

How, then, are terrorists moving the money to pay for their inexpensive yet seemingly expanding operational needs?

Trust Your Local Hawaladar

Most experts agree that in some cases the money moves through the traditional hawala or hundi system. The hawala is defined by an Interpol report from January 2000 as "an alternative or parallel remittance system. It exists and operates outside of, or parallel to 'traditional' banking or financial channels. It was developed in India, before the introduction of Western banking practices, and is currently a major remittance system used around the world."

The key component of hawala is trust. One of the meanings of the word itself is "trust," and this distinguishes it from other remittance systems. The system is built on the extensive use of family relationships and regional networks. Transfers of money take place based on relationships between members of a network of hawaladars, or hawala dealers, and there is usually no paper trail of transactions.

A report by the World Bank in May found that there were between 500 and 2,000 unregistered hawala dealers just in Afghanistan conducting money transfers between Kabul, Peshawar, Dubai, and London. The report also found that single transactions in excess of $500,000 were not uncommon -- especially between Kabul and Peshawar -- and the system is used extensively by international humanitarian aid agencies to move money and, according to the "Times of India" on 24 May 2003, by the World Bank in Afghanistan to move money to outlying villages.

The World Bank estimates that some $80 billion were remitted via hawalas in 2004.

Controlling The Hawala?

One method suggested by counterterrorism experts to control the hawala system is to register its owners. But according to Interpol, the hawala system itself is considered illegal in Pakistan and India, the two largest users, and it would be somewhat ludicrous to register illegal entities.

Freezing the assets of suspected terrorist organizations and donors to these groups is another method that may help control the flow of money, though is action has also not proven itself yet. According to the UN report cited above (http://www.un.org/docs/sc/committees/1267/1267mg.htm), Yemen, long suspected of being a haven for terrorist groups, has managed to freeze only $31.94 of suspected terrorist assets since September 2001, the UN Monitoring team found. Austria only froze $4,000 while Germany found only $6,000 to freeze. Others have been more successful, however, with the United States initially freezing $29.9 million before later releasing $26.9 million of that amount; the United Kingdom froze $608,000 and Saudi Arabia froze $5.68 million.

The UN Monitoring team report also mentions that couriers could be used by terrorists to carry money from country to country. "Initial research by the Monitoring Team on this issue has shown that although many [countries] have regulations governing the trans-border movement of currency by individuals, there is no universal standard on the amounts to be declared," the report says. "Some have different requirements governing residents and non-residents, and distinctions between local and foreign currencies. In some areas, where it is common for most transactions to be conducted in cash, the movement of relatively large amounts is not remarkable and attracts little scrutiny."

It seems, in short, that the ability by terrorist groups to move money across borders will likely continue despite international, regional, and national efforts to control the hawala networks and to freeze the assets of suspicious organizations. (Roman Kupchinsky)