When the Soviet Union imploded in 1991, the rule of law collapsed with it across the former Communist empire. Dissolution in Central Asian government became its own destiny. Chaos gave birth to corruption. Power and greed became the all-encompassing motives for both opportunist oligarchs and their puppet politicians. Gas and gas pipeline networks presented them with means and opportunities. A period of runaway growth ensued for Russian Organized Crime(ROC). Government licentiousness facilitated by former Russian Intelligence agents in the service of nascent predatory capitalists aka oligarchs became the new reality. The pursuit of illicit wealth was optimized by opaque financial transactions at major financial institutions and a plethora of offshore shell companies.
A report filed by Global Witness and referenced in-depth here — documented a Gas-Export contract signed 14 May 2001 between Ukraine and Turkmenistan confirming that the Central Bank of Turkmenistan held account number 949924500 at Deutsche Bank, Frankfurt, Germany. Various reports from international financial institutions state that money from this account was solely controlled by Saparmurat Niyazov, then the president of Turkmenistan referred to there as the Turkmenbashi — leader of all Turkmen.
Global Witness criticized Deutsche Bank for enabling the Turkmen tyrant Niyazov to siphon billions of dollars of public funds to a personal bank account even while Deutsche extended serious financing to support resource development in Turkmenistan. The above-referenced gas-export contract stated that over $800M was to be deposited yearly into this account. Various media reports from a wide variety of sources estimated that between $2Bn-$3Bn was held by the ersatz Turkmen Central Bank located at Deutsche Bank — half a large continent some 2,200 miles away in Germany.
Think anyone at Deutsche Bank filed a Suspicious Activity Report(SAR) with regard to these transactions? If they did, would not such a SAR be quashed immediately given the significance of the client, the revenue stream, the impact on executive bonuses? Something else to ponder — did the Turkmenistan revenue stream provide Deutsche Bank with the seed money needed to enable their expansionist plans to become one of the world’s largest global banks by pursuing high-risk clients worldwide e.g. “the Donald?”
It was reported that billion-dollar revenues from the sale of gas did not make it into the national budget — a staggering 75–80% of government spending in Turkmenistan took place off-budget during the rule of the Turkmenbashi. “Multi-million-dollar monuments to Niyazov’s personal power are the foundation of his authority. While hundreds of millions are squandered on the cult of personality, little money seems to be reaching the people.”
Corruption has Consequences
According to the Global Witness report, the World Bank has estimated that 58% of the country’s population lives in poverty with little money spent by the government in such key areas as education and healthcare. The U.S. State Department stated in 2004 that poverty and healthcare problems have led to a high rate of infant mortality — higher in Turkmenistan than in such historically impoverished countries as Kenya and Zimbabwe. Seriously widespread impoverishment was all the more startling in a country with significant natural resource assets.
Turkmenistan’s natural gas reserves are among the world’s largest(estimated to be the sixth-largest in the world) yet the unemployment rate in 2006 was approximated at 50%. The Turkmenbashi who flunked out of college, cut off a year of required education for all Turkmen upon entering office because he felt more comfortable ruling the uneducated. He did issue an edict that all residents were to be provided free gas which undoubtedly provided solace of some kind to the unemployed, uneducated masses with little access to modern health care. Free gas — a revolving statue of their autocrat leader— and a short life span in dusty Ashgabat was about all the average Turkman could expect from their government.
Turkmenistan is a small country roughly the size of California populated with five million people located between the Karakum Desert and the Caspian Sea across from Azerbaijan. Its natural gas must pass through Russian and Ukrainian territory before reaching the West however and therein lies the rub.
Russia commands the world’s largest albeit somewhat unexplored gas reserves in the world through its state-controlled energy conglomerate Gazprom. Perhaps more importantly in terms of our corruption tale — Russia — through Gazprom — also controls the network of pipelines(Oblgazes) used to pump gas and transport gas from Central Asia to the European Union. Russia signed a 25-year agreement in 2003 that secures Turkmenistan’s important natural gas reserves for Gazprom for another decade.
Gazprom is a massive Russian state-run conglomerate controlled by autocratic President Vladimir Putin. Before Putin took over and installed his old crony and employee from St. Petersburg Alexi Miller as Gazprom CEO, Gazprom was led by Viktor Chernomyrdin who was appointed Gazprom Chairman by Boris Yeltsin. Chernomyrdin also happened to be the Russian Prime Minister at the time so his stewardship of Gazprom was unchallenged but mediocre at best. Chernomyrdin — sometimes referred to as the George Bush of Russia famously stated — “We wanted the best, but it turned out like always.”
Chernomyrdin ensured that Gazprom avoided paying taxes and most government regulation and Gazprom paid no dividends to its stockholders — technically the Russian people while engaging in massive corruption. Gazprom executives and board members occupied themselves in serious asset stripping to the tune of billions. This slowed down somewhat when Miller was installed as CEO. Gazprom then paid as much as 20 percent of total revenues to the Russian government thereby guaranteeing heavy political influence within Russia — so much so it was frequently described as a “state within a state.”
It would be an easy exercise to suggest Gazprom as the root of all gas corruption in Ukraine. But that would be a bit misleading. To fully understand the genesis of corruption endemic to all things gas related in Ukraine one must go back a bit further to the nineties. It was then that the first gas-related negotiations were initiated between the Turkmenbashi and the Ukrainians who fronted for the Russians before Gazprom ever came onto the scene.
Itera — Igor Makarov — Mystery Mogul
Before Gazprom — there existed a gas trading company called Itera run by Igor Makarov — a Russian born in Turkmenistan, eventually moving to Florida — founded the company in 1992 for the purpose of providing Turkmen gas to former Soviet Republics such as Ukraine which soon became its main moneymaker. It has been alleged that Makarov hired a former KGB official as the security chief to direct Makarov’s gas trading empire in Central Asia but this remains unconfirmed. Putin once famously said that there is no such thing as an ex-KGB agent.
Contextually, it is noted that Vladimir Putin’s meteoric career path went from serving as an East German-based FSB(FSB replaced KGB) agent in the Eighties — to Deputy Mayor of St. Petersburg in the early to mid-nineties — to appointment as head of the FSB in 1998 — to acting Prime Minister in 1999 — to acting President of Russia on December 31, 1999 — three days after the Turkman Parliament declared previous Soviet apparatchik Saparmurat Niyazov “President for Life” in Turkmenistan.
Niyazov had declared himself Turkmenbashi — leader of all Turkmen — a year after becoming the first popularly elected president of Turkmenistan on June 21, 1992. Naturally, Niyazov ran for office unopposed and it didn’t take long for him to cash in. Autocrat begat Kleptocrat.
Business contacts were initiated between Itera and Turkmenistan. Makarov supervised, alongside a silent partner, a growing barter business — commodities for gas or food for fuel in its most naked form. Business boomed. So did Makarov’s bank account balance. Spell Itera backward and you get Areti. There came a time when Makarov rebranded Itera into Areti which allowed him to expand so successfully that he grew into a true Oligarch. He embraced all the trappings of luxury including superyachts Areti 1 & Areti 2, along with his own private jet, real estate in Florida and a host of offshore shell companies that concealed his wealth from the taxman in Turkmenistan and the authorities in Ukraine.
The mystery of the Itera rebranding requires answers to the following leading questions — Who caused it? What led to it? And why did this seemingly successful venture take such a sudden turn? The answers to the above questions lie in Ukraine and reverberate to this day.
Dmytro Firtash — Frontman for ROC
The Moscow Times reported that Dmytro Firtash an enterprising Ukrainian entrepreneur advised the Financial Times that he had teamed up with Itera CEO Igor Makarov in 2000, to take over the entire goods-for-gas barter trade then existent with Turkmenistan. They handled the trade jointly through a company called Highrock Holdings Limited. The article goes on to explain that Itera spokesperson Yevgeny Ostapov advised that Highrock was one of the companies Itera sold gas to. Firtash indicated to the Financial Times that he parted ways with Makarov shortly after Putin replaced senior management at Gazprom in 2001.
What Firtash did not tell Financial Times was that when he partnered up with Makarov he was also partnering with Makarov’s ‘silent partner’ — Russian Organized Crime Vor of the Solntsevskaya Bratva — Semion Mogilevich aka ‘the brainy don” who made his bones as a master money launderer for Solntsevo. Notably, the Solntsevo neighborhood in Moscow that the infamous Organized Crime group was named, is situated around the main Interstate highway to Ukraine. Firtash also neglected to advise the media that when he parted ways with Makarov he continued his association with Mogilevich through Highrock referenced above, a Cyprus based company.
Firtash claimed he used Highrock Holdings to transfer food commodities to Itera that were then used to purchase gas in kind from Turkmenistan until Firtash and Makarov had a falling out in 2001 over Makarov’s failure to repay over $50M in gas proceeds owed to Firtash. The dinner confrontation over the large debt between Makarov and Firtash became the stuff of legend and was famously documented in a cable by then Ukraine ambassador William Taylor. In it, Firtash noted that Mogilevich attended the dinner as Makarov’s bodyguard. Also attending the dinner were Solntsevo vors Sergei (Mikhas)Mikhailov and Viktor Averin. Firtash famously recalled that he was unsure he would make it out of the dinner alive. But survive he did and went on to successfully supplant Makarov in monopolizing the gas trade between Turkmenistan and Ukraine. Makarov expanded his business into other areas of Central Asia and eventually sold his business interests in 2012 to Rosneft another massive Russian fuel company controlled by Putin. Makarov’s life mysteriously ended at a conference in India in 2018 or so the rumors go since his death has not been legally confirmed.
Not only did Firtash survive the perilous dinner but his business enterprises thrived. Firtash’s first trading company called KMIL merged with Highrock and Firtash became a Director in 2001. A U.S. State Department cable from Kiev in November 2006 authored by William Klein took note that 34% of Highrock Holdings was owned by a firm called Agatheas Trading Ltd. which Galina Telesh reportedly directed from 2001–2003. Galina Telesh was the ex-wife of Semion Mogilevich. The same cable also noted that Dmytro Firtash and his wife owned 33% of Highrock and Firtash became a Director of Agatheas in 2003.
Offshore shell companies provide ‘Maskirovka’ — masking or concealing the layers of financial links between Mogilevich and Firtash. This is graphically depicted and witnessed by accessing the following links in order from the ICIJ database and scrolling down: Galina Telesh; Barlow Investing Ltd.; Vasiliki Andreou; Toromont Ltd.; Annex Holdings Ltd.; Weyford; Klares; Zillian; Group DF Limited; Dmytro Firtash.
Michael Weiss recounts much of what is noted here in a seminal article when he notes that Highrock’s financial director in the late ’90s was one Igor Fisherman the future president of YBM Magnet Inc — the fake magnet company used by Mogilevich to orchestrate one of the largest money laundering scams in U.S. history. The Ukrainian press regarded Fisherman as the right-hand man of Mogilevich. According to a 1996 FBI file on Mogilevich — Fisherman coordinated Mogilevich contacts and criminal activities in Ukraine, Russia, U.S. U.K., Czech Republic, and Hungary. Both Mogilevich and Fisherman were indicted in the U.S. for the YBM scam. Mogilevich — who was born in Ukraine maintained residences in Moscow, Hungary, and Israel — where his attorney resided.
Zeev Gordon — an attorney for Mogilevich — indicated that Firtash wanted Gordon to set up a Highrock office in Israel. Gordon made the arrangement and Highrock retained the same address as Gordon’s residence in Tel Aviv. And it was Israel that hosted a meeting of high-level ROC figures in 1995 e.g. Boris Birshtein alleged double agent of both KGB and Mossad — co-owner of Seabeco SA along with vor Sergei Mikhailov — wherein ROC territories were divvied up and Ukraine was granted to Mogilevich.
One Wikileaks cable reflects the Firtash claim that Ukraine political leaders Lazarenko, Tymoshenko, and Lazarenko’s assistant Igor Fisherman divided and conquered the Ukraine gas market. Firtash was perfectly situated to cash in.
Firtash established and registered Eural Trans Gas(ETG) in Hungary in 2002 for the purpose of transporting gas from Turkmenistan through Russia to Ukraine. ETG immediately received a billion-dollar contract highlighting the newfound Firtash clout. About this time Gazprom emerged as the Russian state-operated Gas company with new management installed by Vladimir Putin. Putin had established himself as a political despot to be reckoned with when he effectively cowed the Oligarchs draining the Russian economy at the time by jailing a select few — nationalizing their companies and reorienting others such as Gazprom.
“Gazprom is very much a tool of Russian foreign policy,” said Rem Korteweg senior research fellow at the Centre for European Reform. Recall earlier it was noted that Gazprom controls not only huge gas reserves, but more importantly, it has full control of the pipeline networks(oblgazes) through which the gas flows. Oblgaze or black box control became the leverage point for both foreign policy and money-making ventures for the Russian and Ukraine political hierarchy and all those involved in gas trading.
Putin controlled Gazprom. Gazprom controlled the pipelines and through them the flow of gas to Ukraine and from there, on to the West. Putin demonstrated his leverage in 2006 and again in 2014 when Gazprom cut off the gas flow. Reuters reported in 2015 when Gazprom again threatened to cut off gas distribution that Russia supplies about 30 percent of the European Union’s gas needs, half of that via Ukraine. Putin retained full power over the pipelines. With all due respect to Nancy Pelosi — all oblgazes lead to Putin!
RosUkrEnergo(RUE) — Conduit for Corruption
Newsweek reported that then Ukraine President Kuchma made a deal in 2004 with Putin to create a new company — a Ukrainian-Russian joint venture, registered in Switzerland, called RosUrkEnergo(RUE) — to bring in gas from Turkmenistan. The report went on to detail that Gazprom Moscow’s powerful state-owned gas company orchestrated the deal. Gazprom was to own 50 percent of RUE. 45 percent was to be owned through a complex arrangement of shell companies controlled by Ukrainian oligarch Dmytro Firtash an ally of Putin and Ukrainian politicos. While RUE was being set up Kuchma was grooming a potential political successor in Vladimir Yanukovych at the behest and support of Firtash.
RUE, in summary, was created as an intermediary between the Russian national gas company Gazprom and Naftogaz — the Ukraine national gas company. Firtash’s power stemmed from not only his political connections but perhaps just as importantly — from control over joint activity agreements(JAA) between state-owned companies and private sector players. JAA’s are joint ventures but without the formation of a legal entity and operated by the private sector partner. RUE provided the opportunity and JAA’s provided the means for Firtash to cash in along with his silent partners and so they did.
Trump/Russia author Seth Hettena recounts an investment agreement between Trumpman campaign manager Paul Manafort and Dmytro Firtash. “In 2008 Firtash agreed to commit $112M to Manafort’s Manhattan Bulgari Tower project and wired in a $25M deposit. The deposit came from Raiffeisen Zentralbank, the Austrian bank that U.S. officials believed served as a Mogilevich front. The tower deal later collapsed.” No one should be surprised at Raiffeisen’s role as a conduit in this deal. It was a role that Raiffeisen had perfected in Ukraine.
At first, the RUE arrangement concealed the ownership of the shell companies controlled by Firtash and they were put under the cosmetic management of Raiffeisen Investment AG — one of the largest banks in Austria. Later on, Raiffeisen was forced to disclose the shell company ownership and Firtash became the public face of RUE. Multiple media reports along with court records and diplomatic cables revealed that the Russian mafia was allegedly partnering with Firtash to move money behind the scenes. In 2005, Ukraine SBU head Turchynov told Financial Times that he suspected the real person behind RUE was not an oligarch, but Ukraine’s most notorious mob boss — “The surname Mogilevich isn’t in the (gas trade) agreements or in the ownership documents…but there are many indications that a group of people under his control could be involved.”
Kyiv Post — Wikileaks — Dated December 2005 and February 2006, the messages said that Vienna based Raiffeisen Investment AG(RIAG), and its parent company Raiffeisen Group, was probably “a front to provide legitimacy to the gas company that we suspect he [the U.S. indicted Russian crime boss Semyon Mogilevich] controls RosUkrEnergo.”
From the Kyiv Post — “Another batch of confidential U.S. diplomatic cables released by Wikileaks disclosed concerns that one of Austria’s largest banks took bribes to disguise the business interests of a wanted Russian mobster and a Ukrainian billionaire gas trader.” The previously confidential messages, written by America’s deputy head of mission in Austria Scott F. Kilmer also described the Austrian authorities as feeling “uncomfortable with the bank’s role in Ukraine’s gas deal with Russia.”
Another cable reads RUE “makes direct payments of $360K annually to each of two Raiffeisen Investment executives in “consulting fees.” We assess that the payments probably are for bribes for RIAG to maintain the front for Mogilevich.”
Before moving on to discuss the role of other banks in Ukraine corruption it should be noted that it was Raiffeisen that provided the necessary financing for the Trump Tower Toronto investment project spearheaded by Alex Shnaider's son-in-law to the above referenced alleged mob boss and master money launderer Boris Birshtein.
Bank of Cyprus(BOC)
Firtash utilized numerous offshore shell companies to divert his skim, several of which are referenced above. The Chicago based Federal indictment of Firtash was accompanied by an attachment that enumerates many of the Cyprus based shell companies used by Firtash and also delineates two Bank of Cyprus(BOC) accounts that serviced his shell companies: Group DF Limited ******0506 BOC and ******9806 BOC.
Bank of Cyprus was a bank favored by many Russian oligarchs to hide their ill-gotten Kleptocratic gains. It should also be noted that Trumpman Paul Manafort maintained 15 bank accounts at BOC at one time. It has been reported that when the current Trumpman Secretary of Commerce Wilbur Ross bought a majority share of BOC he brought in William Ackerman to run the bank. Ross was one of two vice-chairmen of BOC. The other vice-chair was an ex-KGB agent by the name Vladimir Strzhalkovsky. Ackerman left Deutsche Bank in 2012 after presiding over DB as CEO for a ten year period that brought Deutsche multiple billion-dollar fines for numerous regulatory failures, not the least of which included notable money laundering control lapses involving Russian money laundering.
Recall Turkmenistan maintained an off the books substitute central bank at Deutsche Bank in Frankfort through which billions of dollars flowed. Deutsche extended substantial financing to Turkmenistan in addition to catering to the financial whims of the Turkmenbashi. But Deutsche Bank also had plans for Ukraine.
Seth Hettena again — On September 9, 2005, three days before an expected announcement of Donald Trump’s anticipated but ultimately abortive $500M investment into an exclusive yacht and hotel complex in Yalta arranged by Trumpman and alleged Mogilevich acolyte Felix Sater, Ukraine Minister of Transport Chervonenko announced that Deutsche Bank had agreed to loan $2Bn to finance improvements to Crimea’s railways, postal service, and seaports.
And it is noted in passing that it was Deutsche Bank that provided an $800M dollar loan during this period of time to a Russian oligarch and Putin crony — Oleg Deripaska for his purchase of the Austrian construction conglomerate Straberg. Raiffeisen came to the rescue of Deripaska and Deutsche when the global recession threatened Deripaska’s ability to repay. Sort of the way that Trumpman Secretary of Treasury Mnuchin and Trumpman Senate leader Mitch McConnell rescued Deripaska from economic sanctions imposed on most major Russian oligarchs as punishment for the Russian incursion of Ukraine. Subsequently, Deripaska(Manafort’s business associate) invested multiple millions of dollars in a manufacturing plant in McConnell’s home state of Kentucky. Not that there was a quid pro quo but one humorous consequence of this sequence of events occurred when the Twittersphere dubbed McConnell with the moniker ‘Moscow Mitch’.
While it is true that Deutsche Bank provided financing to RUE and Naftogaz, it was Gazprombank that provided the bulk of financing to both Gazprom and Naftogaz. It was this financing in the billions of dollars and Naftogaz’s inability to repay that became the nub of contention between Russia and Ukraine leading to gas cutoffs and hard feelings that festered all the way to Russia’s incursion of Crimea.
It is noted in passing that in February 2018, the Swiss Financial Market Supervisory Authority FINMA, identified serious shortcomings in the anti-money laundering processes regarding private clients at Gazprombank(Switzerland). Besides spanking Gazprombank with a sizable fine, they were banned from accepting new private clients until further notice.
By the end of 2009, various political cross currents had eroded RUE and therefore Dmytro Firtash’s ability to be an intermediary between Gazprom and Naftogaz — the Ukraine national gas company. Gazprom through Gazprombank extended credit directly to Naftogaz in the billions of dollars cutting out the intermediaries. Naftogaz — no stranger to corruption themselves — frequently were delinquent in their payments to Gazprom which led to the cutoff of gas supply on several occasions.
So what is known about Naftogaz?
Wikipedia relates that Naftogaz is a huge state-owned gas company in Ukraine that employed 72K employees at the end of 2017 and generated revenues of 7.443Bn Euros that year. Wikipedia further notes that Naftogaz is historically one of the largest sources of corruption in Ukraine. Notably, Radio Free Europe/Radio Liberty produced a short documentary entitled “The Palaces of Ukraine’s Oil & Gas Men” about the homes of Naftogaz management during the presidency of Viktor Yanukovych who was overthrown in 2014 in no small part due to his over the top corruption.
Naftogaz’s first CEO was Igor Bakai and his reputation for corruption became so notorious that he was compelled to leave Ukraine and found a home — make that a mega-mansion in the Green Valley suburb of Moscow that housed the retired Russian elite. Bakai notably initiated the introductions between Shnaider and Shifrin with the necessary movers and shakers that facilitated the Trump Tower Toronto deal referenced above.
It is important to note that the transit contract between Naftogaz and Gazprom is set to expire in December 2019 after which Ukraine could cease to be the main transit country of Russian gas to the European Union countries.
Any new transit contracts entered into by Naftogaz will necessarily have to be negotiated and approved by the Naftogaz CEO and Board of Directors with the requisite input of the recently elected and installed Ukraine prime minister Zelensky. The content of the Naftogaz supervisory board has become a major point of contention in the Congressional impeachment inquiry of Trumpmanbashi. It has been alleged that Trumpman Secretary of Energy Rick Perry led the charge of the Three Amigos to change the Naftogaz CEO and the supervisory board and replace them with folks friendly to future prospective gas deals desired by influential gas business connected Trumpmen.
AP recounts in a recent article that “The Naftogaz supervisory board is supposed to be selected by the Ukrainian president’s Cabinet in consultation with international institutions, including the International Monetary Fund, the U.S. and the European Union. It must be approved by the Ukrainian Cabinet.”
The AP article entitled Profit, not politics: Trump allies sought Ukraine gas deal — reflects coverage by Axios and Politico as well as themselves, focus on efforts of Perry in concert with Trump lawyer Rudy Giuliani and his henchmen Igor Fruman and Lev Parnas, as well as Florida businessman Harry Sergeant III, to replace components of the Naftogaz leadership with Trump friendlies and pursue gas deals beneficial to them. The AP article is informative and eye-opening. We make no value judgments here as to the authenticity of the allegation believing that current and future depositions may indeed shed more light.
It is noted that various media reports have documented an association between Dmytro Firtash and Giuliani associates Fruman and Parnas. No guilt by association needs to be applied here. Our narrative will simply end by pointing out that attempting to change the supervisory authorities of Naftogaz now, given the upcoming re-negotiations of a contract between Gazprom and Naftogaz — provides means, opportunity, and motive for those allegedly attempting the change — given the backdrop and landscape of corruption sketched out by the above narrative...
The U.S. government is at a crossroads now in terms of whether it will throw its support to a new Ukraine government that is free of corruption and attempting to bring about the will of the people as reflected in their recent democratic elections — or not.
We end by quoting Ambassador Taylor’s opening statement to the Congressional Impeachment Committee — “If Ukraine succeeds in breaking free of Russian influence, it is possible for Europe to be whole, free, democratic, and at peace. In contrast, if Russia dominates Ukraine, Russia will again become an empire, oppressing its people, and threatening its neighbors and the rest of the world.”
What is the probability of that happening?
We will see…
Martin J. Sheil
email — firstname.lastname@example.org