The Role of Russian Organized Crime in the Gas War of January 2009

On January 20 Alexei Miller, the CEO of Russia’s state-owned gas monopoly, Gazprom, made an amazing confession. He told Interfax that in late December 2008, when negotiations between Ukraine and Russia on a new gas supply contract broke down, the party largely responsible for this was RosUkrEnergo (RUE), the Swiss-based middleman company that sold Central Asian gas to Ukraine.

RUE is 50 percent owned by Gazprom and 45 percent by a Ukrainian businessman, Dmytro Firtash. “Yes, it is true that when the prime ministers of Russia and Ukraine agreed to a price of $235 for 1,000 cubic meters of gas…RosUkrEnergo proposed paying $285. This company was betting that by making such an offer it would remain in the market,” Miller stated. What Miller failed to explain is why RUE would dare undermine the Russian government.

From its inception RUE has been accused of opacity by the media and of “criminality” by Ukrainian Prime Minister Yulia Tymoshenko. Most of the charges centered on Gazprom’s partner in RUE, Dmytro Firtash, and his alleged links to a notorious Russian mobster, Semen Mogilevich. Dmytro Firtash has denied any direct links to Mogilevich. This might be true, but the indirect links suggest that Mogilevich was indeed tied to Firtash, the Kremlin leadership, and the Ukrainian elite.

The history of RUE began in December 2002 when Firtash registered a company in Hungary named Eural Tran Gas (ETG), which signed a contract with Gazprom on December 5, 2002, becoming the middleman in the Turkmen- Ukrainian gas trade.

Strange circumstances surrounded ETG’s creation: unemployed Romanians became principles of the company; an Israeli lawyer with ties to Mogilevich became a nominal director of the company; and Andras Knopp, a former Hungarian communist cultural functionary with no knowledge of the gas business became the director of the company. Even stranger was Firtash’s refusal to reveal that he was the ultimate beneficiary of ETG. Soon after the contract was signed, ETG was given a $70 million loan by Gazprom Bank, which also became the guarantor of a $227 million loan to ETG by Vnesheconombank (Moscow Times, November 27, 2003).

By July 2004 media criticism of ETG forced the Kremlin to eliminate the company and create RosUkrEnergo in its place. RUE came into being during a meeting between Russian President Vladimir Putin and then-Ukrainian President Leonid Kuchma in Yalta. At that time both leaders stressed that RUE would be a fully transparent company, tacitly acknowledging media reports that ETG was opaque. One of the two co-directors of RUE was Konstantin Chuychenko, a former KGB officer, the head of Gazprom’s legal department, and a classmate of Dmitry Medvedev (Chuychenko’s biography was posted on the Gazprom website, www.gazprom.com, but was removed after he left Gazprom to join Medvedev’s administration). The other co-director was Oleg Palchykov, the former director of the ETG office in Moscow who represented Centragas, a company silently controlled by Firtash (Izvestia, April 27, 2006). Palchykov’s appointment as co-director of RUE was met with a great deal of skepticism.

“His [Palchykov’s] candidacy was submitted by Raiffeisen Investment [the nominal owners of Centragas]; and we were unable to stop it,” Alexander Ryazanov, the deputy director of Gazprom and a member of RUE’s coordinating committee, told the Russian newspaper Vedomosti (www.proua.com, February 8, 2005). Why Gazprom wanted to prevent Palchykov’s appointment in the first place was not clear. Gazprom had always insisted that their partners in RUE were honest, transparent businessmen. Had this view suddenly changed?

Part of the explanation could be that the Moscow ETG office Palchykov headed was located in a building on Novy Arbat 14 that was also used by an alleged mobster, Igor Fisherman, who was wanted together with Mogilevich by the FBI. According to Vedomosti on May 30, 2006, Fisherman was Firtash’s partner in the purchase of 75 percent of a Russian company Zangas. The flow of money from RUE to Gazprom was also murky. Apparently it first went to a shell company in Cyprus and then on to Moscow to another shell company, “Rubin” (Stern, September 13, 2007). Why wasn’t the money sent directly to Gazprom?

Chuychenko, Dmitry Medvedev’s man in RUE, however, remained adamant in his whitewashing of Firtash and RUE. “Dmytro Firtash is a very well-known figure in the gas business,” Chuychenko told Ukrayina Television on December 1, 2006. “He has been working in the gas business in Ukraine for a long time, so his appearance in this field was no accident.”

On October 9, 2007, Medvedev made an incredible statement on the German television station ARD: “We will most likely review the scheme of our relations [with Ukraine] and will end the existence of middlemen structures, which we do not fully understand.” How could Medvedev, the head of Gazprom’s board of directors, not understand what RUE was?

Chuychenko’s claims about Firtash were soon disputed by Putin, who told Interfax on January 8, 2009: “50 percent of RUE belongs to Gazprom… the Ukrainian side belongs to persons we do not know…they showed us Mister Firtash once…”

A controversy over massive Ukrainian debts to RUE and RUE to Gazprom heated up in January 2008, and Mogilevich was arrested in Moscow in February 2008. He was charged with aiding a Russian businessman, Vladimir Nekrasov, the alleged owner of the chain of Arbat Prestige perfume stores, in a tax evasion scheme. Documents from the Russian business registry in the possession of Jamestown, however, show that Firtash was instrumental in creating Arbat Prestige.

The day after the Ukrainian-Russian gas agreement was signed, the Russian press reported that a Moscow court had ordered that Mogilevich and Nekrasov remain in detention until March 23 (www.newsru.com/russia/<wbr></wbr>21jan2009/prodlen.html, January 21). Was the timing coincidental or was it linked to RUE’s debt to Gazprom?

The litany of contradictions voiced by top Russian officials in the RUE case, as well as documented evidence, suggests that organized crime is linked not only to RUE; it is a stark indication that corruption in the Kremlin has expanded since Putin’s election in 2000. Who stood to benefit from RUE? Putin claims it was the Ukrainian leadership—the facts suggest otherwise.