Ukraine’s foreign lenders have sent a strong signal to Kyiv’s government, urging it not to revive one of the nation’s most troubled banks in collaboration with Dmytro Firtash, the controversial natural gas trading billionaire and supporter of President Viktor Yanukovych.
Experts say concerns from the International Monetary Fund and World Bank rest largely on Firtash’s role in the 2008 bailout of Nadra Bank. Back then, he pledged to buy and salvage the financially collapsing bank, thereby opening the door to more than $1 billion in central bank assistance that critics insist was largely stolen or misused.
Much of the $1 billion in central bank aid issued in late 2008 after Firtash gave a guarantee to buy and salvage the bank went missing, as did the bank’s chief executive officer, Igor Gilenko, leaving the state with the bank’s still large debt obligations to their depositors.
It is estimated that Nadra owes more than $3 billion overall to government, individual depositors and commercial entities.
Under the new bailout proposal, Ukraine’s government would receive a controlling 50 percent plus one share stake in Nadra in exchange for a $613 million cash infusion. An additional $613 million would be provided by Firtash’s Group DF in return for the rest of the shares in the bank, which was put under central bank control soon after the global financial crisis struck in late 2008.
Purported excerpts from a joint letter from the IMF and World Bank warning against the move began leaking onto the Internet on May 26 – the day after the government’s bank recapitalization committee endorsed the proposal.
“Absent a satisfactory analysis supporting a different decision, our recommendation has been to minimize public costs by resolving Nadra through liquidation,” the World Bank said on June 1.
“International financial institutions and investors don’t like the look of the deal or the fact that Firtash is involved,” said Oleksandr Zholud, a banking specialist for the Kyiv-based International Center of Policy Studies. “They don’t think it would be fair for Firtash to have a role in managing the affairs of the bank.”
Once ranked as one of Ukraine’s top 10 banks, Nadra collapsed like a house of cards when the global financial crisis swept across the globe in hurricane fashion. Its ownership before the crisis remains hazy, and no high level officials have been brought to justice for alleged wrongdoing or mismanagement of the bank.
While prime minister last year, Yulia Tymoshenko nationalized three other troubled banks, but stopped short of nationalizing Nadra, calling instead for an investigation into massive abuses.
In December 2009, Tymoshenko said Firtash misused funds provided by the central bank to recapitalize Nadra and Rodovid Bank, one of the nationalized banks. She also suggested that Yanukovych, whose presidential candidacy was backed by Firtash, could have benefitted.
“You know that Firtash, who destroyed Rodovid Bank, is the right-hand man of [Viktor] Yanukovych, [the leader of the Party of Regions], and today he finances Yanukovych’s election campaign... The same people control Nadra Bank,” the former premier said in December 2009. She earlier called for the resignation of then President Viktor Yushchenko and National Bank of Ukraine Chairman Volodymyr Stelmakh for botching the central bank’s $10 billion bank recapitalization program.
Gilenko, the former Nadra Bank chief executive officer and a Russian citizen, as well as several top bank executives, disappeared from Kyiv in early 2009.
State prosecutors say they are looking for the bank officials in connection with alleged misuse of the recapitalization funds. But no investigation has focused on Firtash, who claims Tymoshenko has waged a politically-motivated campaign against him by cutting him out of the lucrative Russia-Ukraine gas trade and destroying the reputation of Nadra through a smear campaign.
Showing posts with label corruption.. Show all posts
Showing posts with label corruption.. Show all posts
Sunday, 6 June 2010
Thursday, 3 December 2009
Costly corruption
The cost of Russian roads is set by a combination of factors. While corruption and weak controls over budget spending cannot be fully ruled out, I believe that the largest contributor to high costs in this area is linked to a fundamental problem of the Russian economy, namely its extremely high levels of monopolisation and, consequently, low levels of competition. Monopolisation comes as part of the Soviet heritage that Russia received (Soviet planning meant the creation of aggregated producers rather than multiple small operators). However, while low competition is partially the result of high monopolisation levels, it is also a direct result of the weak levels of state support for private initiatives and the difficult investment climate that exists in the country.
The reason is corruption. Because based on our estimates, 10 per cent of the cost goes towards the actual construction. Everything else is kickbacks and additional payments. Apart from that, our market of construction materials is highly monopolised and prices for all construction materials are much higher than they could be. We do not conform to construction technology, so it's lucrative to start repairing the road just after it's finished. This is normal practice. Funds are not released immediately, so construction begins in the winter, when it's more expensive. The main point behind this corruption is not to construct a road that will be functional. The main point is the building process itself, because while it is going on there is money and the possibility to allocate funds from the budget.
Road construction is one of the areas most vulnerable to corruption, and this is not just in Russia but all over the world. There are simply too many opportunities to apply so-called grey schemes, inflate construction costs and so on. Given the very high level of corruption in Russia, indicated by a variety of indices, the implied costs of corruption in road construction must be very high. Of course I do not think that this is the only reason. Russia's climate also contributes to costs, as well as obsolete construction techniques which are not modernised.
The reason is corruption. Because based on our estimates, 10 per cent of the cost goes towards the actual construction. Everything else is kickbacks and additional payments. Apart from that, our market of construction materials is highly monopolised and prices for all construction materials are much higher than they could be. We do not conform to construction technology, so it's lucrative to start repairing the road just after it's finished. This is normal practice. Funds are not released immediately, so construction begins in the winter, when it's more expensive. The main point behind this corruption is not to construct a road that will be functional. The main point is the building process itself, because while it is going on there is money and the possibility to allocate funds from the budget.
Road construction is one of the areas most vulnerable to corruption, and this is not just in Russia but all over the world. There are simply too many opportunities to apply so-called grey schemes, inflate construction costs and so on. Given the very high level of corruption in Russia, indicated by a variety of indices, the implied costs of corruption in road construction must be very high. Of course I do not think that this is the only reason. Russia's climate also contributes to costs, as well as obsolete construction techniques which are not modernised.
Sunday, 17 May 2009
Despite High-Profile Arrests, Corruption Still Dogs Courts
KIEV, Ukraine -- Bribery is the only way to get a favorable ruling from a judge, lawyers say. Despite several high-profile arrests of judges suspected of taking bribes, people working in Ukraine’s judicial system say the courts are as corrupt as ever.
“Bribes are taken by everybody from chairman of the court to judge assistants,” said a lawyer who spoke on condition of anonymity because he’s a practicing attorney who fears retribution if he is identified. “If one doesn’t take bribes, this person doesn’t work in the court system,” he said. Even when the law was on the side of his client, bribes were required to get the necessary ruling, this lawyer said.About half of Ukrainians believe that courts are corrupt, according to a 2008 study conducted by the National Institute for Sociological Studies. But still they fared better in the survey than the Verkhovna Rada, the government, road and regular police and medical institutions.Kateryna Tarasova, head of the Courts Association of Ukraine, whose members include judges, acknowledged the problem. Tarasova blames low salaries of judges. “There is no sufficient financing of the judicial processes. A starting judge makes less than Hr 3,000” monthly, she said.Attempts to reach Vasyl Onopenko, top justice of Ukraine’s Supreme Court, for comment on this story were unsuccessful. In the past, Onopenko has resisted legal changes to make it easier for politicians to appoint and dismiss judges, saying such steps would undermine judicial independence.In the last six months, several judges in Ukraine have allegedly been caught red-handed taking bribes, including Lviv appeals court judge Ihor Zvarych. He is accused of accepting a $100,000 bribe. Other notable cases: Mykola Tyshchuk of Kyiv’s Obolon district court allegedly took a $3,000 bribe while Vyacheslav Lyubashevskiy of Lviv’s appeals court is accused of taking a $20,000 payoff.The number of criminal cases against judges grows yearly. According to the State Security Service, there were 29 criminal cases opened in 2006, 43 cases in 2007 and 52 last year. But few of these get to court because the procedure for lifting the judges’ immunity from prosecution is complicated and involves Verkhovna Rada approval.Also, prosecutors complain that lawyers refuse to testify against judges. “I never met a lawyer who gave testimony against a particular judge,” said Maksym Yakubovskiy, a prosecutor at the General Prosecutor’s Office who investigates such cases. “They want to live and work in this country.”Lawyers who asked for anonymity because they work in the court system described to the Kyiv Post how the bribe-taking works: A chairman of the court is in charge of assigning cases to subordinate judges. Sometimes while passing the papers, the chairman surreptitiously whispers the amount he wants to receive from the interested party as payment for the ‘right’ decision. After the money is passed, it is divided between those involved in the decision making process.Lawyers said most of the bribes are taken and given in property disputes and while determining the term of imprisonment in criminal cases. The sum depends on the level of court, the client’s affluence, and complexity of the case. In a property dispute, for example, bribes can reach 10 percent of the cost of property.“The minimum bribe to a judge in a property dispute is equivalent to the cost of five up-to-date laptops and appeals court decisions will cost twice more,” the lawyer said. He added, however, that in his five or six years of practice he has only come across several honest judges who told him “to hide the money, or I will be arrested for proposing bribes.”Tetyana Montian, a Kyiv lawyer unafraid of voicing her criticisms publicly, has written blogs about bribing judges. Montian said the legal system’s corruption is due to imperfections in legislation regulating property disputes. “A court is a service designed to regulate disputes between parties on property issues. But if positions of parties are not legally regulated, this service won’t work,” she said.Yakubovskiy said vague legislation is not the only reason. He said bribes are accepted because they are offered: “Two-thirds of the time it’s the lawyers who promote corruption in courts.” Yakubovskiy said he knew of several cases in which judges were being pressured into accepting bribes by lawyers who literally stuffed cash into their pockets or briefcases.Yakubovskiy said this happens because for a lawyer it’s easier to pay for the right decision than make a lot of effort to win a case. But Montian said the main problem is that politicians like the status quo and have little interest in changing it, as “our judges are a tool in the hands of political groupings struggling for influence and power,” she said.To become a judge, one has to pass a qualifying exam in front of a committee of 13 members. Two of these are appointed by parliament, two by president, one by the human rights ombudsman, one by the Ministry of Justice, and the rest by an assembly of courts.“They never allow anyone they do not control to become a judge,” one lawyer said.After gaining approval from the committee, the judge is appointed by the president for a term of five years, and confirmed for life in parliament once that term runs out.“Political groupings have divided quotas for appointment of judges; they simply determined that a particular political force will have influence on particular judges,” Montian said.Prosecutor Yakubovskiy said his office has made numerous proposals to the government on how to fight corruption, to no avail.So far, Prime Minister Yulia Tymoshenko’s bloc has only proposed introducing an automated system of assigning cases to make their distribution more random, a step that may cut down on shopping around for favorable judges.Anatoliy Hrytsenko, Our Ukraine faction lawmaker, drafted a bill implementing life imprisonment for corrupt judges. But there is little optimism in these initiatives, even if they are approved.
“Bribes are taken by everybody from chairman of the court to judge assistants,” said a lawyer who spoke on condition of anonymity because he’s a practicing attorney who fears retribution if he is identified. “If one doesn’t take bribes, this person doesn’t work in the court system,” he said. Even when the law was on the side of his client, bribes were required to get the necessary ruling, this lawyer said.About half of Ukrainians believe that courts are corrupt, according to a 2008 study conducted by the National Institute for Sociological Studies. But still they fared better in the survey than the Verkhovna Rada, the government, road and regular police and medical institutions.Kateryna Tarasova, head of the Courts Association of Ukraine, whose members include judges, acknowledged the problem. Tarasova blames low salaries of judges. “There is no sufficient financing of the judicial processes. A starting judge makes less than Hr 3,000” monthly, she said.Attempts to reach Vasyl Onopenko, top justice of Ukraine’s Supreme Court, for comment on this story were unsuccessful. In the past, Onopenko has resisted legal changes to make it easier for politicians to appoint and dismiss judges, saying such steps would undermine judicial independence.In the last six months, several judges in Ukraine have allegedly been caught red-handed taking bribes, including Lviv appeals court judge Ihor Zvarych. He is accused of accepting a $100,000 bribe. Other notable cases: Mykola Tyshchuk of Kyiv’s Obolon district court allegedly took a $3,000 bribe while Vyacheslav Lyubashevskiy of Lviv’s appeals court is accused of taking a $20,000 payoff.The number of criminal cases against judges grows yearly. According to the State Security Service, there were 29 criminal cases opened in 2006, 43 cases in 2007 and 52 last year. But few of these get to court because the procedure for lifting the judges’ immunity from prosecution is complicated and involves Verkhovna Rada approval.Also, prosecutors complain that lawyers refuse to testify against judges. “I never met a lawyer who gave testimony against a particular judge,” said Maksym Yakubovskiy, a prosecutor at the General Prosecutor’s Office who investigates such cases. “They want to live and work in this country.”Lawyers who asked for anonymity because they work in the court system described to the Kyiv Post how the bribe-taking works: A chairman of the court is in charge of assigning cases to subordinate judges. Sometimes while passing the papers, the chairman surreptitiously whispers the amount he wants to receive from the interested party as payment for the ‘right’ decision. After the money is passed, it is divided between those involved in the decision making process.Lawyers said most of the bribes are taken and given in property disputes and while determining the term of imprisonment in criminal cases. The sum depends on the level of court, the client’s affluence, and complexity of the case. In a property dispute, for example, bribes can reach 10 percent of the cost of property.“The minimum bribe to a judge in a property dispute is equivalent to the cost of five up-to-date laptops and appeals court decisions will cost twice more,” the lawyer said. He added, however, that in his five or six years of practice he has only come across several honest judges who told him “to hide the money, or I will be arrested for proposing bribes.”Tetyana Montian, a Kyiv lawyer unafraid of voicing her criticisms publicly, has written blogs about bribing judges. Montian said the legal system’s corruption is due to imperfections in legislation regulating property disputes. “A court is a service designed to regulate disputes between parties on property issues. But if positions of parties are not legally regulated, this service won’t work,” she said.Yakubovskiy said vague legislation is not the only reason. He said bribes are accepted because they are offered: “Two-thirds of the time it’s the lawyers who promote corruption in courts.” Yakubovskiy said he knew of several cases in which judges were being pressured into accepting bribes by lawyers who literally stuffed cash into their pockets or briefcases.Yakubovskiy said this happens because for a lawyer it’s easier to pay for the right decision than make a lot of effort to win a case. But Montian said the main problem is that politicians like the status quo and have little interest in changing it, as “our judges are a tool in the hands of political groupings struggling for influence and power,” she said.To become a judge, one has to pass a qualifying exam in front of a committee of 13 members. Two of these are appointed by parliament, two by president, one by the human rights ombudsman, one by the Ministry of Justice, and the rest by an assembly of courts.“They never allow anyone they do not control to become a judge,” one lawyer said.After gaining approval from the committee, the judge is appointed by the president for a term of five years, and confirmed for life in parliament once that term runs out.“Political groupings have divided quotas for appointment of judges; they simply determined that a particular political force will have influence on particular judges,” Montian said.Prosecutor Yakubovskiy said his office has made numerous proposals to the government on how to fight corruption, to no avail.So far, Prime Minister Yulia Tymoshenko’s bloc has only proposed introducing an automated system of assigning cases to make their distribution more random, a step that may cut down on shopping around for favorable judges.Anatoliy Hrytsenko, Our Ukraine faction lawmaker, drafted a bill implementing life imprisonment for corrupt judges. But there is little optimism in these initiatives, even if they are approved.
Sunday, 12 April 2009
Former Ukraine Prime Minister's Conviction Upheld
SAN FRANCISCO, CA -- Former Ukrainian Prime Minister Pavlo Lazarenko's conviction on money-laundering and conspiracy charges was upheld by a federal appeals court Friday, a judgment that will keep the long-incarcerated politician in U.S. prisons for at least several more years.
Lazarenko, 56, was head of the Ukrainian government from May 1996 to June 1997, during which, prosecutors said, he siphoned at least $200 million from the nation's coffers through elaborate schemes of extortion, cronyism and kickbacks. Ukrainian authorities have also sought his extradition to face charges of complicity in the killings of several political opponents in the 1990s.In U.S. custody since February 1999, when he fled a pending indictment in his homeland and arrived in New York with an outdated visa and an invalid diplomatic passport, Lazarenko was prosecuted in America because much of his ill-gotten money was funneled through U.S. banks. He was initially charged with 53 counts stemming from schemes involving monopoly natural gas sales, inflated government purchases of foreign property and unauthorized transfers to his personal bank accounts in Switzerland, Hungary, Panama and the Caribbean island of Antigua.In May 2004, a federal jury found Lazarenko guilty on 14 of the counts, and the rest were dismissed by the trial judge, mostly because of lack of documentation that money shuffled among his bank accounts was directly traceable to criminal activity. He was later sentenced to nine years in prison.On Friday, a three-judge panel of the U.S. 9th Circuit Court of Appeals in San Francisco overturned the conviction on six counts but upheld the remaining eight. The opinion also noted that the defendant's request for rehearing of his case by an 11-judge panel had been denied, and Friday's ruling was therefore the final judgment of the appeals court.Lazarenko was also tried in absentia in Switzerland in 2000 and convicted of money laundering. The Swiss government seized $6.6 million from his account there in addition to imposing an 18-month sentence, which was suspended because the defendant was already incarcerated at the federal prison in Dublin, Calif. Lazarenko is also sought by Antigua for suspicious activity in Euro Fed Bank there, in which he had $104 million deposited.The appeals court sent Lazarenko's case back to the trial court in San Francisco to recalculate his sentence in view of the overturned counts of fraud and interstate transport of stolen property.Lazarenko has been at the minimum-security facility in Dublin for a decade. It is primarily a women's prison but has an administrative detention area for pretrial prisoners. He probably will be moved to another federal prison after sentencing.
Lazarenko, 56, was head of the Ukrainian government from May 1996 to June 1997, during which, prosecutors said, he siphoned at least $200 million from the nation's coffers through elaborate schemes of extortion, cronyism and kickbacks. Ukrainian authorities have also sought his extradition to face charges of complicity in the killings of several political opponents in the 1990s.In U.S. custody since February 1999, when he fled a pending indictment in his homeland and arrived in New York with an outdated visa and an invalid diplomatic passport, Lazarenko was prosecuted in America because much of his ill-gotten money was funneled through U.S. banks. He was initially charged with 53 counts stemming from schemes involving monopoly natural gas sales, inflated government purchases of foreign property and unauthorized transfers to his personal bank accounts in Switzerland, Hungary, Panama and the Caribbean island of Antigua.In May 2004, a federal jury found Lazarenko guilty on 14 of the counts, and the rest were dismissed by the trial judge, mostly because of lack of documentation that money shuffled among his bank accounts was directly traceable to criminal activity. He was later sentenced to nine years in prison.On Friday, a three-judge panel of the U.S. 9th Circuit Court of Appeals in San Francisco overturned the conviction on six counts but upheld the remaining eight. The opinion also noted that the defendant's request for rehearing of his case by an 11-judge panel had been denied, and Friday's ruling was therefore the final judgment of the appeals court.Lazarenko was also tried in absentia in Switzerland in 2000 and convicted of money laundering. The Swiss government seized $6.6 million from his account there in addition to imposing an 18-month sentence, which was suspended because the defendant was already incarcerated at the federal prison in Dublin, Calif. Lazarenko is also sought by Antigua for suspicious activity in Euro Fed Bank there, in which he had $104 million deposited.The appeals court sent Lazarenko's case back to the trial court in San Francisco to recalculate his sentence in view of the overturned counts of fraud and interstate transport of stolen property.Lazarenko has been at the minimum-security facility in Dublin for a decade. It is primarily a women's prison but has an administrative detention area for pretrial prisoners. He probably will be moved to another federal prison after sentencing.
Friday, 30 January 2009
The Role Of Russian Organized Crime In The Gas War Of January 2009
WASHINGTON, DC -- On January 20 Alexei Miller, the CEO of Russia’s state-owned gas monopoly, Gazprom, made an amazing confession. He told Interfax that in late December 2008, when negotiations between Ukraine and Russia on a new gas supply contract broke down, the party largely responsible for this was RosUkrEnergo (RUE), the Swiss-based middleman company that sold Central Asian gas to Ukraine.
RUE is 50 percent owned by Gazprom and 45 percent by a Ukrainian businessman, Dmytro Firtash. “Yes, it is true that when the prime ministers of Russia and Ukraine agreed to a price of $235 for 1,000 cubic meters of gas… RosUkrEnergo proposed paying $285. This company was betting that by making such an offer it would remain in the market,” Miller stated. What Miller failed to explain is why RUE would dare undermine the Russian government.From its inception RUE has been accused of opacity by the media and of “criminality” by Ukrainian Prime Minister Yulia Tymoshenko. Most of the charges centered on Gazprom’s partner in RUE, Dmytro Firtash, and his alleged links to a notorious Russian mobster, Semen Mogilevich. Dmytro Firtash has denied any direct links to Mogilevich. This might be true, but the indirect links suggest that Mogilevich was indeed tied to Firtash, the Kremlin leadership, and the Ukrainian elite.The history of RUE began in December 2002 when Firtash registered a company in Hungary named Eural Tran Gas (ETG), which signed a contract with Gazprom on December 5, 2002, becoming the middleman in the Turkmen- Ukrainian gas trade.Strange circumstances surrounded ETG’s creation: unemployed Romanians became principles of the company; an Israeli lawyer with ties to Mogilevich became a nominal director of the company; and Andras Knopp, a former Hungarian communist cultural functionary with no knowledge of the gas business became the director of the company.Even stranger was Firtash’s refusal to reveal that he was the ultimate beneficiary of ETG. Soon after the contract was signed, ETG was given a $70 million loan by Gazprom Bank, which also became the guarantor of a $227 million loan to ETG by Vnesheconombank.By July 2004 media criticism of ETG forced the Kremlin to eliminate the company and create RosUkrEnergo in its place. RUE came into being during a meeting between Russian President Vladimir Putin and then-Ukrainian President Leonid Kuchma in Yalta.At that time both leaders stressed that RUE would be a fully transparent company, tacitly acknowledging media reports that ETG was opaque. One of the two co-directors of RUE was Konstantin Chuychenko, a former KGB officer, the head of Gazprom’s legal department, and a classmate of Dmitry Medvedev (Chuychenko’s biography was posted on the Gazprom website, www.gazprom.com, but was removed after he left Gazprom to join Medvedev’s administration).The other co-director was Oleg Palchykov, the former director of the ETG office in Moscow who represented Centragas, a company silently controlled by Firtash. Palchykov’s appointment as co-director of RUE was met with a great deal of skepticism.“His [Palchykov’s] candidacy was submitted by Raiffeisen Investment [the nominal owners of Centragas]; and we were unable to stop it,” Alexander Ryazanov, the deputy director of Gazprom and a member of RUE’s coordinating committee, told the Russian newspaper Vedomosti.Why Gazprom wanted to prevent Palchykov’s appointment in the first place was not clear. Gazprom had always insisted that their partners in RUE were honest, transparent businessmen. Had this view suddenly changed?Part of the explanation could be that the Moscow ETG office Palchykov headed was located in a building on Novy Arbat 14 that was also used by an alleged mobster, Igor Fisherman, who was wanted together with Mogilevich by the FBI.According to Vedomosti on May 30, 2006, Fisherman was Firtash’s partner in the purchase of 75 percent of a Russian company Zangas. The flow of money from RUE to Gazprom was also murky. Apparently it first went to a shell company in Cyprus and then on to Moscow to another shell company, “Rubin”. Why wasn’t the money sent directly to Gazprom?Chuychenko, Dmitry Medvedev’s man in RUE, however, remained adamant in his whitewashing of Firtash and RUE. “Dmytro Firtash is a very well-known figure in the gas business,” Chuychenko told Ukrayina Television on December 1, 2006. “He has been working in the gas business in Ukraine for a long time, so his appearance in this field was no accident.”On October 9, 2007, Medvedev made an incredible statement on the German television station ARD: “We will most likely review the scheme of our relations [with Ukraine] and will end the existence of middlemen structures, which we do not fully understand.” How could Medvedev, the head of Gazprom’s board of directors, not understand what RUE was?Chuychenko’s claims about Firtash were soon disputed by Putin, who told Interfax on January 8, 2009: “50 percent of RUE belongs to Gazprom… the Ukrainian side belongs to persons we do not know…they showed us Mister Firtash once…”A controversy over massive Ukrainian debts to RUE and RUE to Gazprom heated up in January 2008, and Mogilevich was arrested in Moscow in February 2008. He was charged with aiding a Russian businessman, Vladimir Nekrasov, the alleged owner of the chain of Arbat Prestige perfume stores, in a tax evasion scheme. Documents from the Russian business registry in the possession of Jamestown, however, show that Firtash was instrumental in creating Arbat Prestige.The day after the Ukrainian-Russian gas agreement was signed, the Russian press reported that a Moscow court had ordered that Mogilevich and Nekrasov remain in detention until March 23. Was the timing coincidental or was it linked to RUE’s debt to Gazprom?The litany of contradictions voiced by top Russian officials in the RUE case, as well as documented evidence, suggests that organized crime is linked not only to RUE; it is a stark indication that corruption in the Kremlin has expanded since Putin’s election in 2000. Who stood to benefit from RUE? Putin claims it was the Ukrainian leadership — the facts suggest otherwise.
RUE is 50 percent owned by Gazprom and 45 percent by a Ukrainian businessman, Dmytro Firtash. “Yes, it is true that when the prime ministers of Russia and Ukraine agreed to a price of $235 for 1,000 cubic meters of gas… RosUkrEnergo proposed paying $285. This company was betting that by making such an offer it would remain in the market,” Miller stated. What Miller failed to explain is why RUE would dare undermine the Russian government.From its inception RUE has been accused of opacity by the media and of “criminality” by Ukrainian Prime Minister Yulia Tymoshenko. Most of the charges centered on Gazprom’s partner in RUE, Dmytro Firtash, and his alleged links to a notorious Russian mobster, Semen Mogilevich. Dmytro Firtash has denied any direct links to Mogilevich. This might be true, but the indirect links suggest that Mogilevich was indeed tied to Firtash, the Kremlin leadership, and the Ukrainian elite.The history of RUE began in December 2002 when Firtash registered a company in Hungary named Eural Tran Gas (ETG), which signed a contract with Gazprom on December 5, 2002, becoming the middleman in the Turkmen- Ukrainian gas trade.Strange circumstances surrounded ETG’s creation: unemployed Romanians became principles of the company; an Israeli lawyer with ties to Mogilevich became a nominal director of the company; and Andras Knopp, a former Hungarian communist cultural functionary with no knowledge of the gas business became the director of the company.Even stranger was Firtash’s refusal to reveal that he was the ultimate beneficiary of ETG. Soon after the contract was signed, ETG was given a $70 million loan by Gazprom Bank, which also became the guarantor of a $227 million loan to ETG by Vnesheconombank.By July 2004 media criticism of ETG forced the Kremlin to eliminate the company and create RosUkrEnergo in its place. RUE came into being during a meeting between Russian President Vladimir Putin and then-Ukrainian President Leonid Kuchma in Yalta.At that time both leaders stressed that RUE would be a fully transparent company, tacitly acknowledging media reports that ETG was opaque. One of the two co-directors of RUE was Konstantin Chuychenko, a former KGB officer, the head of Gazprom’s legal department, and a classmate of Dmitry Medvedev (Chuychenko’s biography was posted on the Gazprom website, www.gazprom.com, but was removed after he left Gazprom to join Medvedev’s administration).The other co-director was Oleg Palchykov, the former director of the ETG office in Moscow who represented Centragas, a company silently controlled by Firtash. Palchykov’s appointment as co-director of RUE was met with a great deal of skepticism.“His [Palchykov’s] candidacy was submitted by Raiffeisen Investment [the nominal owners of Centragas]; and we were unable to stop it,” Alexander Ryazanov, the deputy director of Gazprom and a member of RUE’s coordinating committee, told the Russian newspaper Vedomosti.Why Gazprom wanted to prevent Palchykov’s appointment in the first place was not clear. Gazprom had always insisted that their partners in RUE were honest, transparent businessmen. Had this view suddenly changed?Part of the explanation could be that the Moscow ETG office Palchykov headed was located in a building on Novy Arbat 14 that was also used by an alleged mobster, Igor Fisherman, who was wanted together with Mogilevich by the FBI.According to Vedomosti on May 30, 2006, Fisherman was Firtash’s partner in the purchase of 75 percent of a Russian company Zangas. The flow of money from RUE to Gazprom was also murky. Apparently it first went to a shell company in Cyprus and then on to Moscow to another shell company, “Rubin”. Why wasn’t the money sent directly to Gazprom?Chuychenko, Dmitry Medvedev’s man in RUE, however, remained adamant in his whitewashing of Firtash and RUE. “Dmytro Firtash is a very well-known figure in the gas business,” Chuychenko told Ukrayina Television on December 1, 2006. “He has been working in the gas business in Ukraine for a long time, so his appearance in this field was no accident.”On October 9, 2007, Medvedev made an incredible statement on the German television station ARD: “We will most likely review the scheme of our relations [with Ukraine] and will end the existence of middlemen structures, which we do not fully understand.” How could Medvedev, the head of Gazprom’s board of directors, not understand what RUE was?Chuychenko’s claims about Firtash were soon disputed by Putin, who told Interfax on January 8, 2009: “50 percent of RUE belongs to Gazprom… the Ukrainian side belongs to persons we do not know…they showed us Mister Firtash once…”A controversy over massive Ukrainian debts to RUE and RUE to Gazprom heated up in January 2008, and Mogilevich was arrested in Moscow in February 2008. He was charged with aiding a Russian businessman, Vladimir Nekrasov, the alleged owner of the chain of Arbat Prestige perfume stores, in a tax evasion scheme. Documents from the Russian business registry in the possession of Jamestown, however, show that Firtash was instrumental in creating Arbat Prestige.The day after the Ukrainian-Russian gas agreement was signed, the Russian press reported that a Moscow court had ordered that Mogilevich and Nekrasov remain in detention until March 23. Was the timing coincidental or was it linked to RUE’s debt to Gazprom?The litany of contradictions voiced by top Russian officials in the RUE case, as well as documented evidence, suggests that organized crime is linked not only to RUE; it is a stark indication that corruption in the Kremlin has expanded since Putin’s election in 2000. Who stood to benefit from RUE? Putin claims it was the Ukrainian leadership — the facts suggest otherwise.
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