#17 - JRL 7215
June 9, 2003
Case shines light on corruption era
Ukraine ex-premier accused in U.S. of money laundering
By Alex Rodriguez, Tribune foreign correspondent.
Pavlo Lazarenko's 11-year free fall took him from the upscale life of a capitalist and a stint as Ukrainian prime minister to a California jail cell and a money-laundering trial in a San Francisco courtroom.
Now, with U.S. prosecutors and defense lawyers taking the unusual step of visiting the Ukrainian capital to depose witnesses for the trial, a larger question looms: Could the Lazarenko case spell trouble for other leading Ukrainian political figures?
The case against Lazarenko, Ukraine's prime minister from 1996 to 1997, may provide one of the best windows yet into the endemic graft that poisoned the former Soviet republic's post-communism transition and for years derailed its relations with the West.
Like most ex-Soviet republics, Ukraine lapsed into reckless, crony capitalism during the 1990s, allowing the well-connected to feed off of the nation's most lucrative state-owned industries. A culture of corruption still pervades life in Ukraine; a recent survey found that more than half of Ukrainians who received medical treatment last year paid bribes to get it. Prosecutors and defense lawyers preparing for the Lazarenko trial have been taking depositions in Kiev since May 19.
At the top of the defense team's list of witnesses is Leonid Kuchma, Ukraine's president since 1994.
A former Soviet missile factory boss, Kuchma has been one of Eastern Europe's most controversial heads of state. Last year the United States accused him of authorizing the sale of sophisticated anti-aircraft radar technology to Iraq's Saddam Hussein regime. The Ukrainian news media also have tried to link him to the murder of a muckraking journalist whose headless body was found in a forest in 2000.
A member of Lazarenko's defense team, Marina Dolgopolaya, would not discuss why she and her fellow attorneys wanted to question Kuchma. Kuchma's aides did not return phone calls seeking comment. Asked if he would testify, Kuchma told The Associated Press on May 28 that he would be "willing to sit down at the negotiating table."
Other key political figures the lawyers in Kiev want to question include former energy minister Yulia Tymoshenko and former Prime Ministers Yevgeny Marchuk and Valery Pustovoitenko. Tymoshenko was a staunch ally and business partner of Lazarenko's, who like Lazarenko had a falling out with Kuchma and eventually was fired by the president.
3 countries pursue cases
The United States is among three countries pursuing criminal cases against Lazarenko, who has been in custody since February 1999.
In 2000, he was indicted in California on charges he used U.S. banks to launder $114 million he either stole or extorted from 1992 to 1999. His trial is set for August.
Switzerland convicted Lazarenko in absentia of money laundering and gave him an 18-month suspended sentence. And Ukraine has charges pending against its former prime minister over his alleged involvement in the murders of two Ukrainian businessmen in 1996 and 1998.
The rise and fall of Lazarenko coincided with the success and demise of United Energy Systems of Ukraine, an obscure maker of pirated videocassettes that in 1995 landed a lucrative government contract as one of Ukraine's primary natural gas distributors.
United Energy was awarded the contract three months after Kuchma appointed Lazarenko as first vice prime minister, a job that included oversight of Ukraine's energy sector. The company was founded by Tymoshenko, at the time a close ally of Lazarenko's.
Before its demise in 1997, United Energy illegally siphoned off $140 million, and $120 million of it made its way to secret bank accounts in Switzerland, Antigua and the United States that were controlled by Lazarenko, according to court documents.
The California indictment against Lazarenko alleges other schemes, including the embezzling of $14 million from a state-run farm while he was a regional government official. Added up, prosecutors allege he defrauded Ukrainian businesses of $200 million from 1993 through 1997.
During that time, he went from collective farm boss to one of Ukraine's wealthiest tycoons. Opponents claimed he owned a $4 million villa in the Swiss Alps. During parliamentary elections in 1998, Lazarenko zipped from one campaign stop to another in an armored BMW, The Wall Street Journal reported. Court records allege he lavished Kuchma and Kuchma's wife with expensive gifts, including a $42,000 Franck Muller watch.
Dispute over income
On his 1996 Ukrainian tax returns, he allegedly reported his yearly income was $5,040, when in reality he had received $165 million, according to court documents. Prosecutors also allege that on his 1997 returns, he reported $5,570 when he had received $15 million.
Now into their fourth week, the depositions are being held in closed session. Whether Kuchma can be forced to testify remains unclear. Ukrainian law affords a witness the right against self-incrimination. But a U.S.-Ukrainian treaty allows prosecutors from each country to seek testimony from the other country's citizens.
A year ago, revelations about corruption within the Ukrainian government likely would have further distanced the beleaguered nation from the West, especially the United States.
But the geopolitical landscape has changed dramatically since the war in Iraq. As its contribution to the U.S.-led war effort, Ukraine sent a chemical weapons response unit to Kuwait. Last week, Ukraine's parliament agreed to send 1,800 troops to Iraq as part of a multinational peacekeeping force.
In return, Ukraine appears poised to benefit from reconstruction contracts in Iraq. Last week, NATO officials announced the "deep freeze" between its alliance and Ukraine was over. The United States has begun talking enthusiastically of Ukraine joining the World Trade Organization.
"There appears to be a genuine effort to decouple what individual officials may have done from the need to revive a strategic relationship that had deteriorated to the point where the chief beneficiary was Russia," said Markian Bilynskyj, vice president of the U.S. Ukraine Foundation, a Kiev-based pro-democracy watchdog group.