Last month’s decision by an Austrian court to grant the request of the Department of Justice to deport Ukrainian gas oligarch Dmytro Firtash to stand trial in the US will have enormous consequences for Ukrainian politics. Ukraine’s current President Petro Poroshenko and the last three – Viktor Yanukovych, Viktor Yushchenko and Leonid Kuchma – have and continue to have close corrupt ties to Firtash.
Throughout the history of Ukraine’s independence, Western experts, intelligence services and diplomats have always possessed more information about the leaders of Ukraine’s gas lobby than have the country’s presidents, prosecutor-generals and Security Service (SBU). The reason for this is because the Ukrainian side always covered up how little it allegedly knew and because its work was politically driven. When President Yushchenko ordered the SBU to investigate who was behind the gas intermediary RosUkrEnergo (RUE) US Ambassador William Taylor offered to tell him and President Vladimir Putin leaked the information to the Russian government newspaper.
With intelligence available from the United States and other sources, and investigations by Western think tanks and media, it was disingenuous for the SBU to “investigate” who in the government had ties to RUE and Russian organized crime. The SBU’s investigations ignored Firtash’s links to mafia boss Semyon Mogilevych and the gas lobby’s support for the pro-Russian Party of Regions. Many US cables from Kyiv (leaked to Wikileaks) showed how the US Embassy collected insightful intelligence on the gas lobby’s infiltration of the Party of Regions. RUE accumulated huge profits that directly assisted Yanukovych and the Party of Regions and as a US cable wrote “strengthened the position of those wanting a closer relationship with Russia.”
Who is Dmytro Firtash?
Dmytro Firtash was born in the Ternopil region and although a western Ukrainian, which has a reputation for being nationalistic and anti-Russian, has always worked on behalf of Russian interests in Ukraine through the gas sector and corrupting Ukrainian politics. In the 1990s, Itera gas intermediary was established by Gazprom which was permitted by Russian leaders to be run by Mogilevych and the Solntsevo organized crime gang.
Itera competed for a short period of time in the mid-1990s with United Energy Systems of Ukraine led by Yulia Tymoshenko whch was destroyed after she went into opposition in 1998. Two other competitors were Respublika and Interhaz headed by Ihor Bakay who, along with Yanukovych is living in exile in Russia. Firtash worked with Itera Chairman Igor Makarov and Respublika and Interhaz President Bakay in the 1990s, becoming a shareholder in Highrock Holdings (renamed Kemnasta Investments) which was owned by Itera. Firtash provided Itera with food commodities through Highrock Holdings, which Itera used to buy gas from Turkmenistan. Itera then paid Firtash in cash from the gas sales.
Until 2003, Firtash owned 33 percent, and another 34 percent of Highrock was owned by Agatheas Trading whose director was Mogilevich’s ex-wife, Galina Telesh after which Firtash became the sole director. Firtash and Mogilevich shared the same lawyer, Zeev Gordon (known also as Vladimir Averbukh), who represented their business and personal interests.
Western experts and diplomats always knew about Firtash’s ties to organized crime. In December 2005 a confidential Austrian police report listed Ivan Fursin and Firtash as senior members of Ukrainian organized crime, which has been confirmed in Spanish criminal charges also made against Firtash. In 2008, Firtash acknowledged to U.S. Ambassador Taylor he had attended a meeting in 2002 with Mogilevich from who he received permission to establish various energy businesses. Mogilevich was involved on behalf of Presidents Borys Yeltsin and Putin in the gas trade until 2008 and therefore Firtash had to have a working relationship with him much earlier stretching back into the 1990s.
Rise of Firtash
By 2000-2001, Itera and Firtash were in financial dispute and Firtash hired Hungarian-born former Hungarian communist cultural functionary (who had no knowledge of the gas business) Andras Knopp to negotiate new gas deals with Central Asia. The creation of the new Eural-Transgas (ETG) gas intermediary led to the collapse of Itera. ETG used unemployed Romanians as directors of the company; an Israeli lawyer with ties to Mogilevich became a nominal director of the company; and Knopp, was also a director. Firtash always hid his ownership of ETG.
Bad media publicity for ETG led to its replacement by RUE in 2004 which came into being during a meeting between Presidents Putin and Kuchma and Naftohaz Ukrayiny Chairman Yuriy Boyko in Yalta were involved in the formation and running of RUE. One of the two co-directors of RUE was former KGB officer and head of Gazprom’s legal department Konstantin Chuychenko who was a classmate of Gazprom Chairman and future Russian President Dmitry Medvedev. The other co-director was Oleg Palchykov, the former director of the ETG office in Moscow who represented Centragas, a company controlled by Firtash. The Moscow ETG office that Palchykov headed was in a building also used by mafia chief Igor Fisherman, an ally of Mogilevich. Both Fisherman and Mogilevych have long been wanted by the FBI.
President Putin wanted to utilise RUE for geopolitical purposes to export greater volumes of gas to the EU. Everybody of course received their cut of the huge returns and kickbacks. Fursin’s five percent ownership of RUE, for example, provided revenue for Kuchma’s “pension” and then senior Kuchma adviser Serhiy Lyovochkin’s “consultancy fee.” Lyovochkin revived his political career as Yanukovych’s Chief of Staff in 2010-2014.
Conflict over Gas
RUE’s closure in 2008-2009 was lobbied by Prime Minister Tymoshenko. Mogilevych was “detained” and retired but as a loyal ally of Yeltsin and Putin he was never criminally charged. In response, Yushchenko and Firtash prepared their counter-attack against Tymoshenko. A National Security and Defence Council resolution and presidential decree condemned Tymoshenko and the 2009 gas contract she signed with Russia after the halting of deliveries has led to a European gas crisis. Yushchenko, his parliamentary allies which then included Poroshenko, and Yanukovych connived in the formation of a parliamentary commission to investigate the gas contract which issued its report on the eve of Tymoshenko’s imprisonment in 2011. Her scandalous imprisonment was brought about through a collusion of Presidents Yushchenko and Yanukovych, their supporters in parliament and the pro-Russian gas lobby.
Firtash Returns as Putin’s Man in Ukraine
Yanukovych’s pro-Russian kleptoctacy was conducive to the creation of the third gas intermediary OstChem. Firtash’s high level contacts in Moscow ensured Ostchem received a heavily discounted price of $230 per 1,000 cubic meters of gas at a time when Russia was charging Ukraine the highest gas price in Europe of over $430. Reselling the gas to Ukrainian industrial users for $430 gave Firtash $3.7 billion “profits” over two years.
Firtash was provided with discounted gas by Russia with the goal of him buying strategic parts of Ukraine’s economy on behalf of Russia (http://uk.reuters.com/article/russia-capitalism-gas-special-report-pix-idUKL3N0TF4QD20141126). When he was detained in Vienna in March 2014, his huge bail of $155 million, the largest in Austrian history, was paid by Russian oligarch Vasily Anisimov who is a member of the governing body in Russia of Putin’s beloved sport of judo.
There is no such thing as a free lunch in Putin’s calculations and Russia wanted to use Firtash – with the help of corrupt Ukrainian politicians – to gain control of strategically important sectors of the Ukrainian economy. In October 2012, Prime Minister Nikolai Azarov’s government canceled Tymoshenko’s government resolution that had given a monopoly on domestic gas trade to the state gas company Naftohaz Ukrayiny which opened the door to the domestic market for Gazprom. Many of the regional gas companies purchased by Firtash were then resold to Gazprom.
Additionally, Firtash purchased big chemical plants and increased his control of mineral fertilizer plants, increasing his share from owning one in 2010 to owning the majority of them by 2013. Firtash’s business empire doubled in size while his capital assets grew at an incredible rate by over 500 percent. In 2012, the Azarov government permitted Gaztek, a company owned by Firtash, to purchase at reduced prices 13 out of 17 privatized regional gas companies that marketed gas to the public. DTEK, part of Donetsk oligarch Rinat Akhmetov’s Systems Capital Management, was also awarded five out of eight privatizations of regional energy companies.
Yanukovych’s four-year kleptocracy facilitated the enrichment of Oleksandr Yanukovych (the president’s son and head of the new clan dubbed “The Family”), Firtash, and Akhmetov while bankrupting Ukraine. The close ties between these corrupt oligarchs and Poroshenko is evident in the lack of criminal charges against members of the Yanukovych regime and the absence of re-nationalisation of stolen assets. In March 2014, Poroshenko, who had served in the Azarov government, attended a meeting in Vienna with Firtash, Lyovochkin and Boyko where they negotiated immunity from prosecution in return for support for his election as president. The gas lobby control Ukraine’s most watched television channel Inter.
Poroshenko’s unwillingness to “live in a new way” as his election slogan campaigned has permitted oligarchs and corrupt money to continue to dominate Ukrainian politics crowding out genuine democratic alternatives. After the Euromaidan, the gas lobby and US political consultant Paul Manafort created three election projects. First, the Radical Party was created as a fake nationalist party to take votes from Tymoshenko’s Fatherland party and the Freedom nationalist party. Second, support for Poroshenko’s election as president and the Poroshenko bloc in parliament. Firtash bragged to a Viennese court that he had gotten Poroshenko elected. Third, the Opposition bloc was organized as a joint venture with Akhmetov as a club for senior former Party of Regions leaders to receive parliamentary immunity from prosecution. The gas lobby controlled three of the six political forces who were elected to parliament in October 2014.
Firtash’s Trial Will be an Earthquake in Ukrainian Politics
Although anti-Russian in their political outlook, Western Ukrainians have been at the forefront of Ukraine’s gas lobby because the region has high levels of expertise in oil and gas since the Soviet era. In 1967, the National Technical University of Oil and Gas was established in Ivano-Frankivsk and it continues to remain a prestigious higher education institution on energy throughout the former USSR. In the early 1970s, after Ukraine’s gas sector declined, tens of thousands of Western Ukrainians with expertise in oil and gas migrated to Tyumen oblast in western Siberia.
Both Western Ukraine’s billionaire oligarchs, Firtash and Oleh Bakhmatyuk, have careers linked to the gas sector. Bakhmatyuk was the “main adviser” to head of Naftohaz Ukrayiny and Congress of Ukrainian Nationalists (KUN) leader Oleksy Ivchenko and after he was forced to resign became deputy head of the state gas company. Ivchenko was based in Turkmenistan in the 1990s where he had worked for Bakay and Firtash. In Ukraine’s virtual political world, it is not incompatible to be a follower of the Ukrainian nationalist leader Stepan Bandera and at the same time pursue pro-Russian energy policies that undermine Ukraine’s independence.
The business wing of Ukraine’s national democrats always had close corrupt relations with the gas lobby and Tymoshenko as their common enemy. Firtash and the gas lobby were quick to establish contacts with Orange and Euromaidan Revolution leaders in December 2004 and in January-March 2014 respectively showing how in Ukraine despite the corrupt gas model remains the same while the franchise merely receives new owners. The gas lobby profitably worked with a huge number of Orange Revolution politicians in addition to Yushchenko who included Poroshenko, Prime Minister Yuriy Yekhanurov, SBU Chairman Valentyn Nalyvaychenko, Chief of Staff Viktor Baloha, and many others. In summer 2005, senior presidential adviser Oleksandr Tretyakov intervened to block the SBU’s arrest of Boyko for his involvement in RUE.
President Yushchenko supported the inclusion of RUE following the first gas crisis in Europe in the 2006 gas contract and during negotiations he took instructions directly from Firtash and Naftohaz Ukrayiny Deputy Chairman Oleh Voronin. Petrohaz, a company registered in the United Arab Emirates and owned by Petro Yushchenko, the president’s elder brother and an Our Ukraine parliamentary deputy, mediated the deal. Ukrainian parliamentarians were shown documents that $53 million was wired by Raiffeisen Bank to two foreign private bank accounts held by Petro Yushchenko on the day the contract was signed.
US Courts and Ukrainian Oligarchs
The arrest of Firtash in Vienna and his deportation to the US will represent the second occasion a Ukrainian oligarch will go on trial in the US; the first being Pavlo Lazarenko who fled to the US in 1999 and served six years in jail for laundering $120, 000. Lazarenko though, is small fry compared to Firtash. His trial will shed light on two decades of political corruption in Ukraine not only among pro-Russian politicians but also supporters of the Orange and Euromaidan Revolutions. Presidents Kuchma, Yushchenko and Poroshenko have far more to be concerned by Firtash giving evidence to the FBI in return for a lighter sentence than Yanukovych who is living a comfortable life in exile in Russia.