Charles Clover   Financial Times   30-Oct-1999   Organized crime meets in Tel Aviv
Mr Birshtein hosted a summit meeting of Russian organised crime figures at his office in Tel Aviv from October 10-19, 1995.
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Saturday October 30 1999

World News / Europe

UKRAINE: Questions over Kuchma's adviser cast shadows

The Ukrainian president's administration is facing serious allegations ahead of polls this weekend, writes Charles Clover

Few people in Kiev will speak openly about Olexander Volkov, a top adviser to President Leonid Kuchma and manager of his campaign for re-election at polls to be held on Sunday.  One well known journalist will not even say his name out loud, preferring to write it on a scrap of paper.  He is a powerful man.

Mr Volkov, however, has become an issue in the campaign.  The president's opponents claim that Mr Kuchma's 5-year-old administration has been shot through with corruption and they place Mr Volkov at the heart of it.

In fact, they claim that with the help of Mr Volkov, Ukraine's industry has been carved up among sometimes unsavoury insiders connected to the Kuchma administration.  If Mr Kuchma wins a second term, these concerns are likely to escalate.

Mr Volkov's influence in the Kuchma camp is great.  After joining Mr Kuchma's successful 1994 presidential election campaign, he served as an official adviser to the new president from 1995-96.  In September 1998, he was appointed vice-chair of the Co-ordinating Committee for Domestic Policy, headed by Mr Kuchma, which currently functions as Mr Kuchma's election committee.

But concerns about Mr Volkov's business connections have persisted, including from abroad.  Two years ago, in response to a legal assistance request from Switzerland, a Belgian judge froze $3m in Mr Volkov's bank accounts in Belgium.  The prosecutor's office launched an investigation.

What they found was that $15m had transited Mr Volkov's Belgian accounts from 1993-97, and that he also had bank accounts in the UK, Germany, Monaco, Luxembourg, Switzerland, and the US.

Mr Volkov declined to be interviewed for this article.

No charges have been filed against Mr Volkov, but the Belgians have asked to come to Ukraine and conduct interviews to determine the source of some of the money transiting Mr Volkov's accounts.  Since July, they have been waiting for visas but so far in vain.

"Until now, we have had no co-operation at all from the Ukrainian side," said an official from the Belgian prosecutor's office.  "To be honest, I would say this is due to deliberate obstruction from a very high level."

The Belgian investigation has revealed Mr Volkov's commercial ties to figures who western law-enforcement agencies say are associated with a Russian organised crime syndicate, the Solntsevskaya mafia, whose influence in Ukraine has grown dramatically since 1994.

Belgian prosecutors confirm that at least $5m of the transfers to Mr Volkov, starting in September 1994 and ending in January 1996, came from companies owned by Boris Birshtein or by associates of Mr Birshtein.  It is Mr Volkov's connection with Mr Birshtein that primarily interests Mr Kuchma's political rivals — and also international law enforcement authorities.  A Russian émigré financier and businessman, Mr Birshtein is currently being investigated by Antwerp police for suspected money-laundering.

Mr Birshtein is known to have contributed funds to Mr Kuchma's 1994 election campaign, and has developed business interests in the Ukraine.  He could not be reached for comment for this article.

The Belgian probe found that of the $5m transferred to Mr Volkov's Belgian bank account, Mr Birshtein's company Seabeco transferred $2m, while Mr Birshtein's associates transferred $3m.

Mr Volkov first came to the attention of European law enforcement organisations as part of a Swiss investigation into Mr Birshtein's business partner, Sergei Mikhailov.  Mr Birshtein and Mr Mikhailov jointly control at least one company, MAB International, registered in Belgium, according to Swiss police.

In a fax to the Geneva prosecutor on December 6, 1996, the Russian interior ministry identified Mr Mikhailov as the "leader of the Solntsevskaya criminal syndicate".  Mr Mikhailov was arrested in Geneva in October 1996.  He was charged and tried for alleged money-laundering and for being a member of an organised crime organisation but was acquitted in December 1998 for lack of evidence.

During the Swiss investigation of Mr Mikhailov, prosecutors found a wire transfer from a trading company named Fearnley — owned by an associate of Mr Mikhailov — to Mr Volkov's account in a Belgian bank in September 1994.  It was this transfer that led to the opening of the Belgian file on Mr Volkov.

Jurgen Roth, a German writer and researcher, claims in his latest book on Russian organised crime, The Grey Eminence, published last month, that as early as November 1994, Mr Birshtein was given a leading role in organising the distribution of energy supplies in Ukraine.

Mr Roth cites a report by the US Federal Bureau of Investigation dated August 1996, and obtained by the FT, which says Mr Birshtein hosted "a summit meeting of Russian OC [organised crime] figures" at his office in Tel Aviv from October 10-19, 1995.  The FBI confirmed the authenticity of the report.

Participants in the meeting included Mr Mikhailov and Semion Mogilevich, who is currently one of the suspects of the money-laundering investigation involving Bank of New York that became public last August.

According to the FBI report: "The subject of the meeting was the sharing of interests in Ukraine."

According to Volodymyr Malinkovitch, who was one of Mr Kuchma's key advisers for his successful 1994 presidential bid, campaign finance came from Birshtein's company Seabeco, after Mr Volkov joined the campaign in February 1994.

These transfers are cited as evidence by Mr Kuchma's political opponents that Mr Volkov has acted as Mr Birshtein's representative in dealings with Mr Kuchma earlier in his presidency.

Mr Malinkovitch was unwilling to talk about the reasons for which Mr Birshtein might have contributed to the 1994 Kuchma campaign.  "I don't want to go into the details, because I am afraid if I did, the western countries would categorically refuse to give us credits," he said.

Insiders in the Ukrainian security services say any contacts there may have been between Mr Kuchma and Mr Birshtein would have ended after January 1997, when Mr Birshtein's visa to Ukraine was revoked.

But even if the links between the Ukrainian government and Mr Birshtein have now been severed, the questions it has raised about Mr Kuchma's first term in office are casting shadows over the second, which most observers believe he has an even chance of winning this weekend.