Corruption Watch: October 27, 2003

By Roman Kupchinsky

A new audiotape with a voice confirmed by the Central Intelligence Agency (CIA) to be that of Osama bin Laden was broadcast by Al-Jazeera television on 18 October. The speaker warned of more suicide-bombing attacks against the United States and those countries helping the coalition forces in Iraq.

"I tell the American people we will continue fighting you and we will continue martyrdom operations inside and outside the United States until you stop your injustice, and you end your foolishness," the voice said. "America is embroiled in the swamps of Tigris and the Euphrates...America is in real trouble...it is screaming for help, from the lowest of people." The recording also appealed to young people to join the jihad (holy war) and seemed targeted to this audience in Yemen and in other states neighboring Iraq.

Meanwhile, one of Osama bin Laden's oldest sons, Saad bin Laden, was named as an important member of the top leadership of Al-Qaeda, according to an article in "The Washington Post" on 14 October. Saad is said to be living in Iran and is being protected and supported by a radical Iranian security force known as the Jerusalem Force (Qods Force). The article claims that 24-year-old Saad bin Laden was in contact with an Al-Qaeda cell in Riyadh, Saudi Arabia, a few days before the suicide bombing there on 12 May in which 35 people died, including eight Americans. The Saudi government has charged Al-Qaeda with being behind this attack.

The article also mentions that the Qods Force is also abetting other top Al-Qaeda leaders in Iran including Saif al-Adil, the organization's chief of military operations; Abdullah Ahmad Abdullah, the chief financial officer; and perhaps two dozen other Al-Qaeda leaders. "The Washington Post" reported that Saudi officials estimate that some 400 Al-Qaeda members are in Iran.

Responding to this report, a diplomat from the Iranian Embassy in London, Mohammad Iskandari, told Al-Jazeera on 14 October: "These claims are untrue. Iran is at the forefront of the campaign against terrorism. We have expelled 2,300 people without valid identity documents from our borders, we have handed over 100 Al-Qaeda suspects, and we are going to prosecute more."

"Asia Times Online" (http://www.atimes.com) on 17 October took a somewhat skeptical approach to the claims in "The Washington Post." It cited "European intelligence sources" as saying: "The leaks [to "The Washington Post"], when put together, convey the impression that Iran, a Shi'ite Islamic Republic, is now supporting Al-Qaeda, an Islamist, Wahhabi, terrorist, transnational organization. That is simply not true."

"Asia Times Online" quoted a European special investigator who said that the main target was not Osama's son but Muhammad Ibrahim Makkawi, a.k.a. Saif al-Adil. A former colonel in the Egyptian Army who fought in Afghanistan against the Soviet Union in the 1980's, Saif al-Adil is said to be the founder of the Islamic Jihad and in charge of intelligence operations as well as Brigade 055, the special forces of Al-Qaeda.

This view, however, was disputed in an article in "The Boston Globe" on 17 October, which cited U.S. intelligence analysts who say that the Qods Force had been given the mission of exporting the Islamic revolution by "arming and collaborating with foreign terrorist groups -- even those who do not share Iran's fundamentalist Shi'ite brand of Islam."

Citing the annual report by the London-based International Institute for Strategic Studies on the current strength of Al-Qaeda, Britain's "The Guardian" reported on 16 October that the organization's ranks "swelled" after the invasion of Iraq and that "Al-Qaeda's great advantage is its operational flexibility as a result of not having a state to defend. The Institute believes the network is present in more than 60 countries, has a rump leadership intact, and that there are more than 18,000 potential terrorists at large, with recruitment continuing." The article does not define what a "potential terrorist" is nor does it mention Iran as a sanctuary for Al-Qaeda leaders.

More light on this network was provided by a story about the manufacture of fake passports in Milan by the Italian newspaper "Corriere della Sera" on 15 October. The article claims that dozens of members of Ansar al-Islam, a militant group with close ties to Al-Qaeda, have been using fake Italian passports to travel to Syria from where they have gone on to Iraq to fight U.S. forces. According to the report, the passports are being produced in Milan, and funds for the network's existence are coming from Germany.

Two Ukrainian sailors were sentenced by an Iraqi court on 13 October to seven years in prison and ordered to pay $2.4 million in fines for attempting to smuggle 3,500 tons of diesel fuel worth more than $800,000, out of the country, Reuters reported. The oil tanker, "MV Navstar-1," with 21 Ukrainian crewmembers aboard, was apprehended on 8 August by the British Royal Navy ship "HMS Sutherland" after it was noticed receiving illegal diesel deliveries from fuel barges.

According to marinelog.com, the "Navstar-1" is a Panamanian-flagged vessel registered to Navstar Shipping of Dubai. The ship is classed with the Russian Register of Shipping and its former name was "Nikifor Rogov." The ship's previous owner was Vals International.

The two sentenced Ukrainian sailors, 67-year-old captain Mykola Mazurenko and 57-year-old first mate Ivan Soshchenko, plan to appeal the sentence. Their defense lawyer, Talib al-Zubaidi, argued that his clients were unaware of Iraqi law and denied they had forged receipts.

According to the press office of the British Forces South East Headquarters, Iraq suffers a loss of approximately 2,000 tons of oil per day due to smuggling. RK

In the 17 October issue of "RFE/RL Organized Crime and Terrorism Watch" in the article titled "Fighting Insurgency and Terrorism," an error was made describing the Tupomaros as a Brazilian terrorist organization. It was in fact Uruguayan.

RUSSIA'S ENERGY SECTOR -- THE TYUMEN OIL COMPANY (Part I)

By Roman Kupchinsky

The cost of doing business in Russia can be prohibitive for most Western companies, not in start-up costs, but in the inherent dangers of tying their interests to those of a local partner who in turn is beholden to the whims and policies of the Russian government.

Some observers are therefore viewing the recent mega-merger of British Petroleum (BP) and the Tyumen Oil Company (TNK) to form TNK-BP as a test case to see if the rules of doing business in Russia have changed. The past weighs heavily on this merger as do the future expected benefits. Suspicions and accusations of corruption at TNK over the years have also haunted this deal, as well as energy policies by the West on the territory of the former Soviet Union. The ongoing investigation of another Russian oil giant, Yukos, is also a factor to be reckoned with. Will these factors become an incurable liability in the long run or will TNK-BP emerge as a powerful and decent corporation?

Norex Versus TNK And Alfa

A few thousand miles away from the merger formalities, another process was in motion involving TNK. A Canadian oil company, Norex Petroleum, was suing TNK and its parent company, the Alfa Group, for $2 billion in a U.S. court for allegedly defrauding them of their stake in Yugraneft, a Russian oil company and a key TNK subsidiary. Norex claimed it had been cheated and wanted its money back.

The complaint, filed by Norex's lawyer Bruce Marks in the U.S. District Court of the Southern District of New York (http://ia.ita.doc.gov/download/russia-nme-status/ posthearing/marks-sokolov/norex-complaint-040802.pdf), describes how this was supposedly orchestrated: "The illegal scheme included the illegal takeover of Yugraneft, another Russian oil company of which Norex was majority shareholder, which was effected by TNK in the 'old fashioned way' -- through fraudulent representations, sheer physical force of armed thugs, and corruption of the local government, legal system and law enforcement which refused to intervene and protect Norex's rights."

The suit further alleges how the literally "hostile takeover" was arranged by TNK and its owners:

On 29 June 2001, TNK took over the offices of Yugraneft in Nizhnevartovsk.

"Alexander Berman, an officer of a TNK affiliate, accompanied by six TNK attorneys and at least 16 thugs wearing military style fatigues and armed with machine guns invaded Yugraneft's office in Nizhnevartovsk.

"Their legal authority was a purported shareholders meeting of Yugraneft on 28 June at which Berman was allegedly elected as general director of Yugraneft, allegedly attended by Norex.

"Such a meeting never took place....

"A few days later, on 6 July 2001, TNK security guards armed with handguns and machine guns took over the oil field and field office.

"The TNK thugs cut off phone and Internet service in order to prevent the Yugraneft employees from communicating with the outside world.

"On 17 July, [Semen] Kukes, the president of TNK, came to Yugraneft's field operations and informed the employees that Yugraneft had been taken over by TNK...."

During one of the confrontations, the complaint quotes a statement made by a TNK representatives to Aleksei Timoshkin, an attorney for Yugraneft: "Do you have life insurance? You might need it because anything can happen. It might happen that some drunk will meet you near your house and nobody will be able to trace it to anything."

TNK has denied the charges in the complaint and the trial has not yet taken place.

The Privatization Of TNK

TNK controls the huge Samotlor oil field in Siberia, which during Soviet times produced more oil than Kuwait and Iraq combined. However, poor production techniques left the field inefficient and waterlogged and in 1997 TNK was put up for privatization. At that time a 40 percent stake in TNK was purchased by Access/Renova and the Alfa Group through a joint-venture investment vehicle known as ZAO (Closed Shareholders Society) Novy Holding.

Afterwards, a special investigation by the Russian Audit Chamber determined that the 1997 privatization violated numerous aspects of Russian law and was rigged to favor the successful bidder. Among the violations listed by the Audit Chamber was that the State Property Committee failed to verify the legality of the source of funds used by Novy Holding to purchase its stake in TNK.

The Norex complaint alleges: "Upon information and belief, Access/Renova and Alfa paid bribes through the wiring of funds through banks in the United States to [then State Property Committee Chairman Alfred Kokh] and other Russian government officials to obtain their support for the corrupt privatization of TNK in 1997."

After the privatizations of 1997 were over, allegations arose around Kokh's role in lowering the price of Norilsk Nickel so that Oneksimbank could purchase it for another oligarch, Vladimir Potanin (see "RFE/RL Newsline," 5, 6, 7, 8, and 15 August and 3 October 1997 and "Russia: Moscow Prosecutors Investigate Former Privatization Head," 1 October 1997). As a result of these accusations, President Boris Yeltsin fired Kokh -- Yeltsin said that "some banks are apparently closer [than others] to the heart of Alfred Kokh, and this is not proper."

In 1999 the remaining stake in TNK was sold at government auction. Once again Access/Renova and the Alfa group, now allegedly using a different front company, ZAO Novie Prioritety, bought the remaining shares. Once again the auction was believed to have been rigged and the Russian State Duma at the time even passed a resolution urging the cancellation of the sale.

TNK And The U.S. Export-Import Bank

In December 1999, U.S. Secretary of State Madeleine Albright refused to allow the U.S. Export-Import Bank to guarantee up to $500 million in loans to TNK needed to buy vital equipment. Albright pointed to the fact that some Western oil companies, including BP Amoco, had complained that they had been cheated by TNK when the Russian company bought a rich Siberian oil field at a high discount during a bankruptcy proceeding. The day after Albright delayed the loan guarantees, BP Amoco withdrew their objections to the transaction. By early April 2000, RFE/RL reported that Albright changed her mind (see "RFE/RL Newsline," 3 April 2000 and "Russia: U.S. Cites 'Rule of Law' In Loans For Oil Company," rferl.org, 3 April 2000) and that State Department spokesman James Foley announced that TNK was now addressing U.S. concerns and that Albright's delays "had a tonic effect on this particular situation. Moreover, in recent appearances, President-elect [Vladimir] Putin has made clear, public statements recognizing the importance of protecting investor and creditor rights...."

The Kroll Investigation

But reports of TNK's involvement with alleged illegal practices in Russia persisted and in February 2002 TNK President Semen Kukes and Alfa Bank Managing Director Aleksandr Knaster met with representatives of Kroll Associates, a private investigation company, to discuss with them the possibility of hiring Kroll to investigate the charges being leveled against Alfa in the Russian and Western media. According to a letter from Kroll to Knaster dated 8 February 2002 (a copy of which is in the possession of "RFE/RL Organized Crime and Terrorism Watch") these were: "At the end of 1999 and the beginning of 2000 articles appeared alleging that Alfa Bank, together with Mikhail Fridman, TNK, Viktor Vekselberg and others, had engaged in a money laundering scheme involving the Bank of New York.... Our research has also found articles in the Western press linking TNK, and by extension Alfa Group, to the deployment of armed troops in Nizhnevartovsk in November of last year.... We [Kroll] will address the BONY [Bank of New York] story, in the first instance, by investigating the circumstances by which the story appeared in the press; who wrote about it and who leaked or announced the information. We will also make discreet approaches to the investigating authorities in New York to establish whether Alfa was indeed a subject of their enquiries, and whether that is still the case."

Alfa had commissioned Kroll to undertake this investigation since the European Bank for Reconstruction and Development (EBRD), according to the letter from Kroll, "was continuing in its refusal to do business with Alfa Bank. Although the EBRD gave no reason for its decision, you believe that it relates to the preparation of a due diligence report on the wider Alfa Group, the contents of which may resemble the findings set out briefly above."

Alfa, however, did not ask Kroll to investigate charges that its 1997 privatization of TNK was alleged in the press to be rigged.

The result of the Kroll investigation has not been made public, although the report might have been shown to BP if BP conducted their own due diligence of TNK's business practices prior to finalizing the formation of TNK-BP.

The Privatization Of Slavneft

In December 2002, Slavneft, the last of the major Russian state-owned oil companies, was put on the privatization block. The results were more or less the same as in 1997. TNK, in partnership with the company Sibneft, bought 75 percent of the shares of Slavneft for $1.86 billion. The China National Petroleum Corporation (CNPC), which was ready to pay over $3 billion for Slavneft, was privately told to leave the auction. Then TNK turned around and sold BP half of its share (one-quarter) of Slavneft for $1.35 billion (see "RFE/RL Business Watch," 3 September 2003).

Some would argue that this was a shrewd maneuver; others claim that the Russian treasury was deprived or defrauded of badly needed cash and TNK made a killing. This was revealed in the Russian press and President Putin was forced to act. He did so by sending the police and prosecutors after -- Yukos oil company in July 2003.

When BP was asked by London's "The Observer" on 6 April about allegations that its partner, TNK, had been suspected of racketeering, the BP spokesman replied, "We've done this deal because we believe TNK is a company we can work with."