ANALYSIS: The case of Pavlo Lazarenko: a study of high-level corruption (PART II, CONCLUSION) (02/24/02)

ANALYSIS

The case of Pavlo Lazarenko: a study of high-level corruption

PART II

by Roman Kupchinsky
RFE/RL Crime, Corruption and Terrorism Watch

Pavlo Lazarenko, former prime minister of Ukraine, is alleged to have stolen hundreds of millions of dollars via different criminal enterprises. U.S. procurators have not even begun investigating his activities in other countries, limiting themselves to money laundered into the United States. With President Leonid Kuchma protecting him, Mr. Lazarenko was busy hoarding money in offshore bank accounts. During this period it was not uncommon to see transfers of millions of dollars from account to account in different countries.

According to the second superseding indictment in the Northern District of California, San Francisco Division, Mr. Lazarenko received money arising from schemes to defraud committed by the owners and principles of United Energy International, Ltd. (UEIL), United Energy Systems of Ukraine (UESU) and Somolli Enterprises, Inc., which were related companies doing business in Ukraine and with Ukrainian state enterprises as follows: In his official capacity, Mr. Lazarenko promoted the operations of UESU and related companies by, among other things, ensuring that UESU had a near-monopoly right to distribute natural gas to certain commercial enterprises in the Dnipropetrovsk region of Ukraine and by arranging for the Ukrainian government to pledge to use state funds to repay the debts of UESU payable to RAO Gazprom, the supplier of natural gas to Ukraine.

UESU fraudulently diverted - to foreign bank accounts belonging to UEIL - payments from Ukrainian customers for natural gas delivered to UESU and subsequently failed to pay RAO Gazprom for the natural gas.

Between 1996 and 1997, UEIL transferred approximately $50 million to Somolli Enterprises, a Cypriot company controlled by the same individuals who controlled UESU.

In 1996 Somolli Enterprises transferred the following sums: a) approximately $50 million to account No. 024/10/61310/00 at AmerBank in Poland in the name of "ORPHIN, S.a."; b) approximately $14 million to account No. 5451 in the name of "WILNORTH"; c) approximately $23 million to account No. 21383 at Banque Populaire Suisse in the name of "ORPHIN, S.a."; and d) approximately $14 million to European Federal Credit Bank correspondent account No. 1150-645039 at Pacific Bank in San Francisco for credit to account No. 151897 in the name of "ORPHIN, S.a."

All were accounts controlled by Peter Kirichenko.

The money was then transferred to accounts controlled by Mr. Lazarenko, including account No. 08-05785-3 in the name of "KATO-82" at Credit Lyonnais in Zurich, Switzerland; account No. 5353 in the name of "CARPO-53" at Bank SCS Alliance in Geneva, Switzerland; and to accounts at European Federal Credit Bank, among other accounts.

Prior to appointing Mr. Lazarenko the country's prime minister, President Kuchma was aware of his past and his sins. It is clear that Mr. Kuchma disregarded incriminating documents given to him by Hryhorii Omelchenko - the former head of a parliamentary committee on combating corruption and author of a 1999 book titled "Corrosion of Power" - and instead chose to have Mr. Omelchenko investigated instead of Mr. Lazarenko.

Western pressure grows

By early 1997, President Kuchma was coming under intense Western pressure to have Mr. Lazarenko removed. Instead, he chose a course of passive resistance, one in which the procurator general dragged his feet in the investigation of Mr. Lazarenko. And Mr. Kuchma clearly had the right man for the job.

Mr. Vorsinov was a local procurator from Dnipropetrovsk who was already battling allegations that he participated in various illegal enterprises until one day he came to the attention of politicians in Kyiv. They immediately noticed his talents and brought him on board.

In 1993 the entire staff of investigators at the Procurator General's Office in Dnipropetrovsk had sent a letter to the procuratorgeneral in Kyiv asking that Mr. Vorsinov, the regional procurator, be removed for illegally terminating cases and abusing his position, as well as on moral and ethical grounds. In response to that letter, all the investigators whose signatures appeared on it were summarily sacked.

In October 1995 a parliamentary anti-corruption commission recommended that Mr. Vorsinov not be appointed procurator general. Despite that protest, President Kuchma chose him for this sensitive job.

It was among the methods the president employed in implementing his decree of August 1994 "on combating corruption." It was Mr. Vorsinov who was given the delicate task of dealing with the accusations against Mr. Lazarenko. He did so by stalling and prolonging the investigation, by spending more time investigating the whistle-blower, Mr. Omelchenko, than the accused, Mr. Lazarenko. There is little doubt today that this entire scenario was cooked up by President Kuchma, who had been protecting, and possibly benefiting from, the protection being granted to Mr. Lazarenko from the very beginning.

On July 1, 1997, Mr. Lazarenko was relieved of his duties as prime minister of Ukraine. The pressure from the West had become too much for President Kuchma to bear. Mr. Lazarenko had become a liability and thus had to go.

In December 1997 President Kuchma fired Mr. Vorsinov and appointed Oleh Lytvak as Ukraine's acting procurator-general. On December 23, 1997, Mr. Lytvak formally charged Mr. Lazarenko with criminal activities.

But Mr. Lazarenko was a national deputy and, therefore, immune from prosecution.

Lazarenko on the offensive

Angry at President Kuchma for having relieved him of his prime minister's post, Mr. Lazarenko went on the offensive. First he created his own political party, Hromada, which he stated was in direct opposition to Mr. Kuchma. Then he proclaimed that he would run for president in the next elections. Mr. Kuchma was beginning to take notice of Mr. Lazarenko's new face.

Then the offensive grew. Mr. Lazarenko wrote in October 1998: "I want to state, and place on the record, that the 'case of the Swiss bank accounts' and 'Lazarenko's dacha [vacation home],' and all the other, I am convinced, affairs which will be concocted by the masters of political intrigues in the Cabinet of Ministers and by the procurator general are an open attempt to discredit the opposition, nothing but a commissioned political affair. Knowing our Procurator General's Office, I would not be surprised if I am to be accused of murdering the Russian emperor, Nikolai II, or taking part in the murder of Trotsky." (Holos Ukrainy, October 28, 1998).

Mr. Lazarenko ("Pasha," as he was called by his cronies from Dnipropetrovsk) knew his topic. He had himself witnessed many such perversions of justice by the Procurator General's Office. Interestingly enough, Mr. Lazarenko did not go after President Kuchma in this article. It seems that he still had hope that President Kuchma would not press for his imprisonment and that a deal could be cut.

Neither did Mr. Kuchma press for a drastic solution to the problem. If anything, the president sought to delay the Lazarenko case and keep Parliament from a vote on lifting his immunity. It is now clear that President Kuchma was afraid of provoking Mr. Lazarenko into naming how much money he might have given him.

Mr. Lazarenko felt that he was still powerful enough to conduct his businesses. On December 2, 1998, he was detained while attempting to enter Switzerland by car and using a Panamanian passport he had obtained by "investing money into the Panamanian economy." He was accompanied in the car by a man of Russian citizenship. On December 4, he was formally arrested by Swiss authorities for money laundering in criminal case No. P/2489/98, which was being investigated in Geneva.

Mr. Lazarenko apparently was going to check on his accounts in Switzerland, or transfer money into other, new accounts. By this time, he did not trust any of his closest cohorts to do so for him - including his closest co-conspirator, Mr. Kirichenko. He needed to transfer money to California, where he had purchased a mansion in Novato (near San Francisco) for $7 million, and where his wife and children were living. The maintenance and taxes alone on the house were not insignificant, and he needed to provide for his family. Normally, he would have entrusted these tasks to Mr. Kirichenko, but for some reason he did not.

Mr. Lazarenko spent 13 days in a jail cell in Geneva. Then on December 17, bail in the amount of 4 million Swiss francs was posted by an unknown benefactor, and Mr. Lazarenko was allowed to go free, provided that he would return to Switzerland to stand trial on money- laundering charges.

CONCLUSION

This final installment about the activities of former Ukrainian Prime Minister Pavlo Lazarenko is largely based on information published on the independent Ukrainian website Criminal Ukraine (http://www.cripo.com.ua/) in 2001. It shows the web of connections between members of the Ukrainian ruling elite and their families in activities which are improper at best and most likely illegal.

Meanwhile, the trial of Mr. Lazarenko is scheduled to begin in San Francisco in November.

In March 1997 a closed tender was held in Kyiv to allocate frequencies for the GSM-900 system of telecommunications. The winners were announced at a press briefing by the committee that conducted the tender. The winners were three companies; the first two were well-established joint-venture companies operating in Ukraine for a number of years: Ukrainian Mobile Communications and Ukrainian Radio Systems. The third winner was an unknown company called Kyiv Star that had neither an address nor a phone number in the capital.

A few days after the results were announced, Motorola, one of the joint-venture partners of Ukrainian Radio Systems, angrily announced that it was leaving the country after having invested $500 million into its operations there. Nobody seemed to care that Motorola was leaving the market. Some were pleased by this turn of events, especially people in President Kuchma's administration and in Prime Minister Lazarenko's Cabinet of Ministers.

For weeks prior to the announcement of the winners, the head of the State Committee on Communications, which was responsible for the tender, had not been able to get a good night's sleep. He was being bombarded on a daily basis by telephone calls from the president's administration and from the Cabinet of Ministers with very explicit instructions on which companies were to be awarded the tender. His recently appointed first deputy and head of the committtee on licensing radio frequencies was Oleksander Hneletskyi.

Mr. Hneletskyi had come to Kyiv from Dnipropetrovsk, the hometown of both Messrs Kuchma and Lazarenko. In Dnipropetrovsk Mr. Hneletskyi had headed the local telephone network. Soon after the tender ended, Mr. Hneletskyi returned to his former job in Dnipropetrovsk. He had accomplished his mission in Kyiv.

Many people wondered where Kyiv Star had come from; it had never placed a telephone call for anyone anywhere. Soon an announcement was made. It seems that Kyiv Star had been formed in 1994. Its founding entities were the State Committee on Communications, the Energy Ministry, the Ukrainian State Railroad Company, British Telecom, Teller International and the Luxembourg-based company Impeks Group. But the company was dormant. It made its first mobile telephone call only on December 9,1997, eight months after winning the GSM-900 tender.

In 1997 Kyiv Star underwent a total reorganization. It went from being a public stock company to a closed shareholders company under the name Kyivstar GSM with start-up capital of $28 million. The company officially claimed that 51 percent of the shares belonged to Ukrainian entities, which consisted of the companies Storm (21 percent of the shares) and Omega (30 percent); 14 percent belonged to the U.S.-based investment fund Sputnik; and 35 percent belonged to the Norwegian company Telenor. The CEO of Kyivstar GSM was identified as Yurii Tumanov.

Soon it became known that Mr. Tumanov was also the CEO of Storm and, furthermore, that he was the brother of the Ukrainian first lady, Liudmyla Kuchma. His daughter, Svetlana, also was a leading member of the company. It was also discovered that Storm owed 31 percent of the shares of Kyivstar GSM, and not 21 percent as was claimed publicly.

The Omega part of Kyivstar GSM was registered in Dnipropetrovsk in October 1996 and in fact held 20 percent of the shares and was, until recently, headed by a member of the Ukrainian Parliament, Natalia Donets, a leading member of Mr. Lazarenko's Hromada Party and a close friend of Mr. Lazarenko's wife. Presently, Omega is headed by Konstantin Avdeyev, the former personal bodyguard for Mr. Lazarenko.

Among the founding members of Omega are Nataliya Pushanko and Anatolii Donets, Natalia Donets' husband. The founding capital for Omega arrived in 1998 from the company Nemura Industrial Group Ltd., which is registered in Antigua.

The Nemura Industrial Group Ltd. is not an unknown company in Ukrainian politics. On July 11, 1997, a Ukrainian-Antiguan joint venture called SP Pravda Ukrainy was formed by the Kyiv company Puls, which was owned by the collective of the newspaper Pravda Ukrainy (a newspaper that was the official voice of the Hromada Party) and the Antiguan company Nemura, whose address was the same as the Nemura Industrial Group Ltd. The founders of Nemura were Mr. Lazarenko and Mr. Kirichenko. The bank account of the company was in the European Federal Credit Bank in Antigua, through which Messrs. Lazarenko and Kirichenko were laundering vast sums of money.

The third part of Kyivstar GSM consisted of two Sputniks: Sputnik 4 LP, registered in the U.S. state of Delaware, and Sputnik 5 Holdings Limited, registered in Cyprus. Both Sputniks listed their representative as one Gregory Bedrosian. Many in Kyiv suspect that both Sputniks are companies owned, in fact, by Mr. Lazarenko. The "LP" at the end of Sputnik 4 gives it away, they claim. Mr. Lazarenko had the habit of inserting his name, initials, the names of his daughters, the town he was born in and other similar facts onto his accounts.

By 1998 the leading personalities of Kyivstar GSM consisted of the following people: Mr. Tumanov (President Kuchma's brother-in-law), chairman of the board; Yelena Frantsuk (Mr. Kuchma's daughter), who headed the marketing department; and Irena Yuriyivna Kravchenko (the daughter of former Internal Affairs Minister Yurii Kravchenko).

The money illegally received for Mr. Kuchma's Kyivstar GSM began in Kyiv in the offices of Prime Minister Lazarenko, then made its way to Switzerland, then to Antigua, then back to Dnipropetrovsk and Kyiv. The circle closed upon itself.

Postscript: On August 15, 2001, Hryhorii Omelchenko, a member of the Verkhovna Rada and head of the parliamentary Committee on Corruption, called a press conference and announced that President Kuchma had received a $3.7 million bribe from Mr. Lazarenko and that this bribe was in the form of capital to form the company Kyivstar GSM. Earlier, in the fall of 2000, Mr. Omelchenko had sent a request to Ukrainian Procurator General Mykola Potebenko, asking that Kyivstar GSM be investigated to show if any money stolen by Mr. Lazarenko had made its way to the company. Thus far, no answer has been received.

PART I

PART II, CONCLUSION

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