ANALYSIS
The case of Pavlo Lazarenko: a study of high-level corruption
by Roman Kupchinsky
RFE/RL Crime, Corruption and Terrorism Watch
PART I
The case of Pavlo Ivanovych Lazarenko, once one of the most powerful men in Ukraine and now an inmate at a federal detention facility in California, is a classic study of high-level corruption in Ukraine. It involves not only Mr. Lazarenko, but a long list of players beginning with the Ukrainian president who appointed Mr. Lazarenko prime minister, to the head of the Intelligence Service that vetted the appointment, to the Procurator General's Office that watched as an impoverished nation was bled dry.
It is also the story of a lax law-enforcement system and Parliament that refused to investigate his dealings, preferring to let the dirty work be done by the United States and Switzerland, and only afterwards becoming a minor participant.
The extent of Mr. Lazarenko's activities may never be known. The major frauds that have been documented in the West include his dealings with the Naukovyi State Farm, and United Energy Systems of Ukraine, and the GHP Corp. scam. There is also evidence of his relationship with President Leonid Kuchma in the creation of a mobile-phone company in Ukraine, where Mr. Lazarenko's money was used as the start-up capital of this firm. The case has been plagued by constant postponements of the trial date and changes in Mr. Lazarenko's defense team. The trial is due to begin this year in San Francisco.
The Scientific State Farm
Pavlo Lazarenko began his career as a young tractor driver on a collective farm in the Dnipropetrovsk region of Ukraine. He rapidly rose in the ranks of Soviet Ukraine through loyalty to his superiors and a willingness to cut them in on deals that he controlled. At one point in his interrogation he admitted that as prime minister he always took 10 percent of every deal. It was also widely known that this 10 percent cut was shared by others.
The first documented scam that brought Mr. Lazarenko fame among the elite in Kyiv was connected with the unlikely commodity of Angus cattle. Naukovyi (Scientific) was a state-owned cattle-breeding farm located in the village of Taromsk in the Dnipropetrovsk region of Ukraine. Its director was Mykola Agafonov. It also became a "Leased Research Farm" (also headed by Mr. Agafonov) and eventually an agro-business of the Ukrainian Academy of Agrarian Sciences.
On August 10, 1992, when Mr. Kuchma was prime minister of Ukraine and Mr. Lazarenko was President Leonid Kravchuk's representative to the Dnipropetrovsk region, Mr. Agafonov signed two contracts with Dutch company Van Der Ploeg & Terpstra, B.V. According to those contracts, $11.088 million was to be deposited with ABN-AMRO Bank by Naukovyi State Farm, to be used by the Dutch firm to purchase 8,400 head of cattle for the farm. Director Agafonov did not have the cash to buy the cattle, so he turned to Mr. Lazarenko for help in raising cash by selling ferrous metals and using part of the proceeds to pay for livestock. Mr. Lazarenko helped Mr. Agafonov obtain an export license from Kyiv for the metal, which he sold to Van Der Ploeg & Terpstra. Mr. Agafonov sold 64,000 tons of ferrous metals to the Dutch company, more than compensating for the amount needed to buy the Angus cattle.
According to information from Hryhorii Omelchenko, the head of the Ukrainian Parliament's Anti-Corruption Committee, these metals were then purchased from Van Der Ploeg & Terpstra by fugitive American financier Marc Rich, Concord Trade Limited and Cargill. These initial dealings took place when Mr. Kuchma was the Ukrainian prime minister. In 1993 Mr. Kuchma gave the Naukovyi farm 110 head of cattle free of charge in order to promote cattle breeding.
Mr. Agafonov himself admitted that both Mr. Kuchma and Mr. Lazarenko were close to his company; according to Mr. Agafonov, Mr. Kuchma often visited the state farm at the time. It was also Mr. Kuchma, as prime minister, who had to approve the export licenses for ferrous metals from Ukraine.
In the so-called "Superseding Indictment" of Mr. Lazarenko by the United States, dated November 30, 2000, it is stated: "Lazarenko, while a government official in Ukraine, received money derived from fraud from Mykola Agafonov, who was the chief administrator of Naukovyi State Farm ... as follows:
"1. Lazarenko, while a government official in Ukraine, exercised his official authority to ensure that Naukovyi State Farm received various benefits and privileges from the government of Ukraine, including the right to export metal products and raw materials produced by Ukrainian state enterprises.
"2. Agafonov then exercised the right to export metal products and raw materials by entering into a series of agreements with Van Der Ploeg & Terpstra, B.V., in Leeuwarden, the Netherlands, for the purchase of cattle and other related supplies by Naukovy State Farm, pursuant to which the cattle and other related supplies were to be paid for in part with Ukrainian government funds and in part from the proceeds of the sale of metal products and raw materials exported from Ukraine.
"3. After the metal products and raw materials were exported from Ukraine and sold, the proceeds from the sale of metal products and raw materials exceeded the actual price of the cattle and other related materials.
"4. Agafonov caused the preparation of false contracts in which the value of the cattle was fraudulently inflated to account for most of the excess funds received by him from the sale of metal products and raw materials. ...
"7. Of the approximately $34 million that were deposited into the ABN-AMRO accounts from the sale of metal products and raw materials, Agafonov transferred approximately $20 million into personal accounts belonging to himself, his associates, and Lazarenko, including a transfer of $1,205,000 to Account No. 502.607.03L in the name of LIP Handel A.G., in Fribourg, Switzerland; a transfer of $2,972,000 and $4 million to account No. 08-05785-3 in the name of KATO-82 at Credit Lyonnais Bank in Zurich, Switzerland; and a transfer of $6,014,000 to account No. 21383 at Banque Populaire Suisse in the name of ORPHIN. S.A. which was subsequently transferred to account No. 21768 in the name of NIHPRO at Banque Populaire Suisse controlled by Lazarenko."
The Kuchma-Lazarenko relationship continued to bear fruit in the coming years.
"Everything is in order"
On August 18, 1994, Mr. Kuchma was inaugurated as president of Ukraine. Standing in front of the Parliament building and assembled guests, he swore on the Bible (the New Constitution of Ukraine had not yet been adopted) to uphold the law of the land. Nine days later, in one of his first official acts, he signed a presidential decree aimed at combating corruption in Ukraine.
In September 1995 President Kuchma announced that he would appoint Mr. Lazarenko as first vice prime minister of Ukraine. At the time, the head of the parliamentary commission on combating corruption, Mr. Omelchenko, met with President Kuchma to protest the Lazarenko appointment.
It was not the first meeting between these two men regarding Mr. Lazarenko: in December 1994 and April 1995 Mr. Omelchenko had given the president documentary evidence of Mr. Lazarenko's criminal activities and asked Mr. Kuchma to request that the Security Service of Ukraine (known by its Ukrainian-language acronym, SBU) investigate the charges.
According to Mr. Omelchenko's version of events, published in his 1999 book "Corrosion of Power," during the September 1995 meeting President Kuchma told Mr. Omelchenko that Volodymyr Radchenko, the head of the SBU at the time (and the current head of the service following Mr. Kuchma's dismissal of Leonid Derkach, who headed the service during the "tape scandal") had conducted the investigation and had found "everything to be in order with Lazarenko."
On October 21, 1996, President Kuchma appointed Mr. Lazarenko the country's prime minister. Less than one month later, in a televised ceremony on November 14, President Kuchma awarded Prime Minister Lazarenko the Order of Yaroslav the Wise, one of Ukraine's highest honors.
In December 1996 Mr. Omelchenko went to the procurator general at the time, Hryhorii Vorsinov, with a stack of documents hinting at Mr. Lazarenko's possible illegal activities. Upon seeing the documents, Mr. Vorsinov refused to accept them. In the ensuing conversation he mentioned that Pavlo Ivanovych "had many friends in very high places from Dnipropetrovsk." Mr. Omelchenko argued that it was Mr. Vorsinov's duty to investigate this matter, but the latter steadfastly refused, according to Mr. Omelchenko's book.
Having few options left, Mr. Omelchenko went to see the president at noon on January 3, 1997. He handed him a packet of almost 300 pages of documents, outlining in detail the prime minister's allegedly corrupt activities. He asked that these documents not be made public, for they were sensitive and their misuse could jeopardize the case against Mr. Lazarenko. Mr. Kuchma appeared amazed and angry. He ordered Mr. Vorsinov, the procurator general, and Mr. Radchenko, the head of the SBU, to conduct an "objective investigation."
That same day, according to Mr. Omelchenko, this entire packet of documents found its way onto Mr. Lazarenko's desk.
On April 16, 1997, Mr. Omelchenko received a phone call from an investigator from the Procurator General's Office who said he needed to see him about the ongoing investigation. Mr. Omelchenko told him that he was leaving for Germany three days later and did not have time. That same evening the investigator called again and said that it was an urgent matter. They met and, from Mr. Omelchenko's description of the meeting, the only topic that was of importance to the investigator was where Mr. Omelchenko had obtained his information about Mr. Lazarenko's accounts and activities abroad.
Mr. Omelchenko left for Germany on April 17, two days earlier than he had told the investigator. On April 19 Procurator General Vorsinov announced that he had begun a criminal investigation - of Mr. Omelchenko.
What transpired between Mr. Lazarenko's appointment as prime minister and the start of a criminal investigation against Mr. Omelchenko can be found in the United States Superseding Indictment of Mr. Lazarenko.
PART I
Copyright © The Ukrainian Weekly, February 17, 2002, No. 7, Vol. LXX
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