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KI News Highlights (August 1-7)

Kleptocracy Initiative

August 7, 2015
Russia’s Top Anti-Corruption Official Charged with Abuse of Power to Stay in Jail
The Moscow City Court on Friday extended until December 14 the detention of Denis Sugrobov, former head of the Interior Ministry’s Economic Security and Anti-Corruption Department who was charged with abuse of power, RAPSI reports from the courtroom. According to investigators, Sugrobov and his deputy Boris Kolesnikov tried to provoke a Federal Security Service (FSB) officer by offering him $10,000 a month for his protection. Sugrobov was charged with organizing a criminal group, abuse of power and bribery last May. In late August, Moscow’s Basmanny District Court seized assets owned by Sugrobov and Kolesnikov, which have been reportedly estimated at over 300 million rubles ($4.7 million).

China-Linked Hackers Breached American Airlines Systems Too
Business Insider
China-linked hackers have breached the computer systems of U.S. airline company American Airline Group Inc and travel reservations platform provider Sabre Corp, Bloomberg reported, citing people familiar with the investigations. The same hackers had targeted insurer Anthem Inc in February and the U.S. government’s personnel office in June, Bloomberg reported on Friday.

Ukraine’s Top Oligarchs Weather Storm, Retain Political Influence
Kyiv Post
Ukraine’s oligarchs have hit a rough patch financially, but they still wield too much influence over the nation’s politics and economic life, according to a report published by Transparency International Ukraine on Aug. 5. Political parties are dependent on them for money, and reforms get undermined as a result. Economists Basil Kalymon and Oleh Havrylyshyn, writing in the New Atlanticist on Aug. 3, see the culture of oligarchic corruption in Ukraine as the root of economic woes. “The system of bureaucrats, police, prosecutors, judges, and politicians controlling governance for the oligarchs’ benefit must be broken or Ukraine will sink under the weight of a totally failed economy,” Kalymon and Havrylyshyn warned.

How Russian Energy Giant Gazprom Lost $300bn
Experts say Gazprom’s main problem is that it continues to serve as Putin’s favoured geopolitical weapon. Examples include the company’s purchase of major Russian media outlets that were then turned into Kremlin mouthpieces, bullying or buying the loyalty of neighbouring states and sponsoring the egregiously expensive Olympic Games in Sochi. Most ominously for the company, the Putin administration still keeps pushing Gazprom to implement new projects that are important for the Kremlin but risky from a financial viewpoint. Two prominent examples concern Ukraine and China.

August 6, 2015
What China Is Completely Missing in Its Latest U.S. Extradition Gambit
To be sure, the U.S. does not want to become a haven for criminals, let alone corrupt plutocrats of a regime that rhetorically champions communism but in reality practices rapacious crony capitalism. When China has a legal system that meets international standards for respecting human rights, the U.S. will have little problem obliging its request for sending fugitives back to face justice. But that day is not here yet.

U.S. Suspects Russia in Hack of Pentagon Computer Network
Washington Post
U.S. military officials said Thursday that they suspect Russian hackers infiltrated an unclassified Pentagon e-mail system used by employees of the Joint Chiefs of Staff, the latest in a series of state-sponsored attacks on sensitive U.S. government computer networks.

Leaks Over Nemtsov Murder Signal Both Dissent and Democracy in Russia
The shooter is believed to be Chechen fighter Zaur Dadaev, who initially confessed to the crime before claiming to have done so under duress, with the implication that he received his orders from Ruslan Geremeev, deputy commander of the special forces Sever Battalion. The loudly unspoken question is whether Geremeev was in turn acting for the Chechen leader, Ramzan Kadyrov, or one of his close allies. The reason we know this much is that there has been a steady flow of official statements and strategic leaks to the Russian media over the past five months. Whatever the truth behind the case, whoever decided Nemtsov had to die and why, the very fact that a traditionally tight-lipped system is leaking from every seam says something about today’s Russia.
KI – To some in Moscow, Putin’s cash-for-peace security pact with Ramzan Kadyrov is getting old.

Graft Buster-in-Chief Wang Qishan Aims for Party, State Law Separation
“The majority should be dealt with using light party disciplinary measures and organizational restructuring, a minority should be dealt with using heavy party disciplinary measures and an extremely small minority of people found to have committed gross violations of party discipline should face criminal prosecution,” according to Shanghai’s the Paper. Wang likely wants to assume a role which will allow him to deal more closely with party discipline and standards, such as political discipline, organizational discipline and respect for regulations on confidentiality, as well as issues such as adultery and work style, rather than investigating the criminal activity of party members, according to the report.

Wealthy Brother of Top Chinese Corruption Suspect Lived Quiet Life in California Suburb
LA Times
After settling quietly into a $2.5-million, 8,000-square foot home in the Sacramento suburb of Loomis, the man who introduced himself as Jason Wang said nothing to his new neighbors about being connected to the innermost sanctum of Chinese politics and elite business circles. “Because of his brother’s position, Ling Wancheng may have knowledge of more government secrets than anyone who has fled China since 1949,” said Ho Pin, founder of the U.S.-based Chinese language news website Mingjing News, which publishes juicy headlines about the machinations of the Communist Party leadership. “Not so much military-type secrets, but real details about corruption and information about current leaders that could destroy the image of the Communist Party if revealed,” he said.

Ukraine’s Other War
My frustration with Ukraine’s post-Soviet system reached boiling point in 2011. After years of struggling to faithfully carry out my duties as prosecutorial investigator, I decided that I was absolutely done with Yanukovych-era ways. I could no longer take the criminality of law enforcement bodies, the immunity of members of the then-ruling Party of Regions, the overwhelming corruption — so I left. Now I feel truly hopeful that Ukrainians can finally defeat the endemic graft which has held us back for so long. My compatriots still feel doubtful though, and I understand them. If it wasn’t for my own experience of taking part in the hiring process for the National Anti-Corruption Bureau, I would have similar thoughts. But in round after round of interviews, I saw striking openness and fairness in recruitment. The whole country could witness the same online.
KI – Some encouraging news from a country with a long way to go

Ukraine Subpoenas Ex-President Yanukovych
Ukraine has subpoenaed fugitive former President Viktor Yanukovych to testify in a corruption investigation. The subpoena states that Yanukovych is requested to arrive at the Prosecutor-General’s Office in Kyiv on August 11 for questioning related to an investigation into crimes committed under Article 191 of the Criminal Code. Article 191, paragraph 5, of the code relates to the “misappropriation of property” and embezzlement of funds through the use of a public office to commit large-scale fraud.
KI – It seems unlikely the kleptocrat plans to leave the safety of Moscow to face the music in Kiev.

Mikhail Khordorkovsky’s Father Questioned in Russia Over 1998 Murder
Russian investigators have questioned the 82-year-old father of Mikhail Khodorkovsky over the murder of a Siberian mayor in the 1990s, in a move apparently designed to put pressure on Russia’s former richest man, who spent a decade in jail. Boris Khodorkovsky was questioned in Moscow on Thursday over the 1998 killing of the mayor of Nefteyugansk, a Siberian town where Mikhail Khodorkovsky’s Yukos oil giant had major operations. Investigators say the younger Khodorkovsky, who now lives in Switzerland, is a key suspect in the murder. He has always denied involvement in the murder, and his supporters have suggested the timing of the case is meant to put pressure on him.

August 5, 2015
PetroChina Wins Dismissal of US Lawsuit Over Alleged Bribery
U.S. District Judge Edgardo Ramos in Manhattan dismissed claims by PetroChina investors who accused the company and various officials, including former Chairman Jiang Jiemin, of deceiving them about its internal controls and governance. In the U.S. lawsuit, investors led by Jeffrey Klein and Samuel Ayoub accused PetroChina and individual defendants of violating U.S. securities laws by concealing “bribery, political corruption, and undisclosed related party transactions.” Ramos, however, said the plaintiffs failed to show that PetroChina made false statements about its corporate governance practices or its internal controls over financial reporting.

NASA Signing $490M Contract with Russia
The Hill
NASA informed lawmakers on Wednesday that because Congress has failed to fully fund its Commercial Crew Program for the last five years, it is signing a $490 million contract extension with Russia to send Americans to space. The new contract, running through 2019, means that NASA will continue to depend on Russia to get its astronauts to space even as tensions between Washington and Moscow escalate. It will put money in Russia’s pockets even as U.S. economic sanctions seek to put pressure on Russian President Vladimir Putin’s government over the conflict in Ukraine.

United States: No Proof of Knowing Misconduct by Congressmen on Trip’ Paid by Azerbaijan,’ Says Ethics Report
No action will be taken by the House of Congress ethics committee against a group of lawmakers who took a trip to Azerbaijan allegedly paid for by its state oil firm. A 70-page report by the House Committee on Ethics (HCE) said it found no evidence that ten congressmen and 32 staff who visited Azerbaijan for a conference in May 2013 had knowingly broken any rules.

An Anti-Corruption Algorithm
Kyiv Post
Ukrainian society knows full well that the people at the top in all of Ukraine’s state institutions, from the presidency down to the local police department, have to change. But whenever the pressure builds enough to force one corrupt official out of office, there’s always another, equally corrupt or even worse one waiting to take their place. To tackle this form of corruption, a way must be found to break the bonds of dependency and support between a boss and his subordinates. We have to acknowledge that there is a sort of warped honor among thieves, and they will act to protect each other – not out of empathetic concern, of course, but in order to save their own skins. We have to appeal to this basic selfish motivation in a way that incentivizes corrupt officials not to protect their colleagues, but to be rid of them.

Family Offices Flourish as China’s Ultra-Rich Strive to Preserve Their Wealth for Generations
South China Morning Post
Yen’s company helps the ultra-rich set up and run their family offices. A family office refers to an organisation run by and for a family, which centralises the management of a significant family fortune with the aim of transferring the wealth across generations. Typically, such entities have employees to manage investments, taxes, trusts and legal matters. Growing families with ever-increasing additions, including some of different nationalities, rendered a family structure more complex and hence required a customised wealth structure, he said.

August 4, 2015
Is the U.S. Less Corrupt Than Russia?
Baltimore Sun
Last year, University of Miami professor Karen Dawisha authored the book Putin’s Kleptocracy: Who Owns Russia? She traces the rise of Vladimir Putin and chronicles his rule. Her thesis is this: After a major political change — in this case, the breakup of the Soviet Union — most countries go through a period of instability and corruption but gradually bring lawlessness under control. In Russia, however, the exact opposite has happened: Russia has developed corruption into a fine art. Our system is rife with abuses of power, conflicts of interest, and paybacks to the rich through sole-source contracts, tax preferences or beneficial regulations. These “pay-to-play” schemes are endemic to corruption, making it hard to understand how our politicians are any better than Russia’s, whom they are quick to condemn.

China to Set Up ‘Security Offices’ Inside Internet Companies
Bloomberg Business
The Ministry of Public Security will add police officers at “critical” companies to help boost defenses against cyber-attacks and fight criminal activity, the state-run Xinhua News Agency reported, citing a ministry conference. “It’s probably part of this cybersecurity paranoia that seems to be gripping China,” said Doug Young, author of “The Party Line: How the Media Dictates Public Opinion in Modern China.” “Having the watchdog sit in their office would be a constant reminder that the government is watching them.”

August 3, 2015
China Seeks Businessman Said to Have Fled to U.S., Further Straining Ties
New York Times
Mr. Ling is the youngest brother of Ling Jihua, who for years held a post equivalent to that of the White House chief of staff, overseeing the Communist Party’s inner sanctum as director of its General Office. Ling Jihua is one of the highest-profile casualties of an anticorruption campaign that Mr. Xi has made a centerpiece of his government. The Obama administration has thus far refused to accede to Beijing’s demands for Ling Wancheng, and his possible defection could be an intelligence coup at China’s expense after it was revealed last month that computer hackers had stolen the personnel files of millions of American government workers and contractors. Mr. Ling’s wealth and his family’s status have allowed him to move freely in elite circles in China, and he may be in possession of embarrassing information about current and former officials loyal to Mr. Xi.

DOJ Said to Probe Deutsche Bank on Russia Mirror Trades
Bloomberg Business
U.S. federal prosecutors are investigating billions of dollars of trades Deutsche Bank AG made on behalf of Russian clients as recently as this year, according to people with knowledge of the situation. The probe brings to at least three the number of unresolved U.S. criminal investigations against the bank, including scrutiny of whether it rigged benchmark foreign-exchange rates and violated U.S. sanctions laws. The Justice Department is also looking into the bank’s dealings in mortgage- and asset-backed securities.

Moscow Vows Tit-For-Tat Asset Seizures In $50bn Yukos Dispute
Financial Times
Moscow has warned Washington that it is ready to seize US assets if American courts freeze Russian ones to enforce a $50bn damages award to shareholders of defunct oil company Yukos. The warning, revealed on Monday, comes just weeks after France and Belgium froze some Russian state assets as part of efforts by Yukos shareholders to collect the damages, despite Moscow’s refusal to pay.

Moldova: New PM Elected, Vows to Tackle Missing Billion Bank Crisis
The Parliament of Moldova has voted in a new pro-European prime minister to tackle financial crisis and corruption in the small ex-Soviet nation. Already the poorest country in Europe, Moldova has suffered from a deepening financial crisis since November when, through a series of fraudulent loans and transfers, US$1 billion was stolen from three of Moldova’s largest banks. The audacious theft, which was finally made public in April this year, amounted to an eighth of the country’s total GDP and left it in political turmoil.

IMF Says Western Sanctions Could Cut 9 Percent Off Russia’s GDP
Last year Western countries imposed restrictions that limit international financing for major Russian banks and energy companies, and also high-tech exports to the energy sector. Russia retaliated by banning imports of most Western food products. The Fund estimated the immediate effect of sanctions and counter-sanctions had been to wipe between 1 and 1.5 percent off GDP, rising to 9 percent over the next few years. These model-driven results were subject to significant uncertainty, it cautioned.

The Limits and Necessity of Europe’s Russia Sanctions
European Council on Foreign Relations
A year has passed since the EU imposed the so-called “structural sanctions” against Russia. Still, a great deal of uncertainty remains not only over the question of whether the sanctions work, but even more importantly – what are they actually supposed to achieve? Do we want Russia to leave Donbas? Give back Crimea? Do we expect a regime change in Moscow? Or do we want Russia to start behaving “as a normal European country,” i.e. one that tries to base its influence on attraction rather than coercion? These things should be better thought through before the sanctions debate starts again at the end of the year, when the deadlines for fulfilling the Minsk agreement – to which the bulk of sanctions are linked – will expire, and Europe will need to decide whether the agreement has been implemented or not and if not, whose fault it is.

August 2, 2015
Putin Spokesman Corruption Accusations: Opposition Leader Calls Out Lavish Watch At Dimitry Peskov’s Wedding
International Business Times
When Dmitry Peskov, the spokesman for Russian President Vladimir Putin, married his girlfriend of five years Saturday, not all the attention focused on the groom or the glamorous bride, former champion ice dancer Tatiana Navka. Instead, it was Peskov’s expensive wristwatch that drew scrutiny. In a photograph of the bride and groom kissing, strapped around Peskov’s right wrist was a Richard Mille RM 52-01, worth at least $620,000.

127 Bank Officials Held for Corruption in China
The Hindu
China has detained 127 officials from its banking industry, including presidents and chief of local branches, for their alleged involvement in corruption, the latest to get netted in President Xi Jinping’s anti-raft campaign. Among the detained, half of them were banks presidents or chief of local branches, state-run People’s Daily reported. They were accused of bribery, embezzlement, illegal lending and other illicit acts, it said.

August 1, 2015
White House Will Retaliate Against China for OPM Hacks
The Hill
The Obama administration has decided it will retaliate against China for orchestrating the devastating digital theft of over 22 million Americans’ personal information, The New York Times reported. “One of the conclusions we’ve reached is that we need to be a bit more public about our responses, and one reason is deterrence,” one senior administration official involved in the debate told The Times. “We need to disrupt and deter what our adversaries are doing in cyberspace, and that means you need a full range of tools to tailor a response.”

London is a ‘Danger Zone’ for Putin’s Russian Critics
London has become one of the most dangerous cities in the world for critics of Russia’s president, Vladimir Putin, with “no one safe” from the reach of the Kremlin, according to one of Alexander Litvinenko’s closest confidants. Speaking hours after the closing statements of the inquiry into the killing of Litvinenko on Friday, Felshtinsky said that a string of unsolved murders indicated that a culture of impunity existed in London for the murderers of Russian dissidents.

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