[Marxism] The crooked Ukrainian gas broker who forged ties with both Russia and John McCain's top advisers

Louis Proyect lnp3 at panix.com
Mon Apr 21 10:17:35 MDT 2014


NY Times, April 21 2014
Ukrainian Gas Broker Faces Scrutiny
By ANDREW E. KRAMER

MOSCOW — Gas pricing wars between Russia and Ukraine, like the one 
breaking out now, have generally ended badly for the two countries and 
Gazprom, the Russian energy monopoly.

But not for Dmytro Firtash, a Ukrainian businessman who made a career 
and a fortune as a middleman in this troubled energy trade. For more 
than five years, Gazprom sold Mr. Firtash fuel at reduced prices. He 
resold it to the Ukrainian state energy company, Naftogaz, and other 
clients in Ukraine at a markup, making billions of dollars along the way.

Throughout the former Soviet Union and Eastern Europe, such gas 
middlemen, who arrange big-ticket deals between suppliers and buyers, 
have been essential to the region’s energy dealings, as well as its 
politics. An open question after the change of leadership in Ukraine 
this year is whether a new gas middleman will play a role in the current 
pricing dispute.

In the past, players like Mr. Firtash have helped broker solutions. 
Worried about higher energy prices, European governments were willing to 
accept murky arrangements with the middlemen to assure a steady flow of 
natural gas.

This was the case in 2006, when Gazprom and the post-Orange Revolution 
government in Ukraine failed to agree on a price, but did finally hash 
out a deal to trade through a mystery intermediary. The identity of the 
trader was such a secret that Gazprom did not release his name for 
months after signing the contract, eventually doing so through an 
anonymous leak in a newspaper the energy company owns, Izvestia. It was 
Mr. Firtash and a minority partner, Ivan Fursin.

An energy crisis in Ukraine now seems imminent, analysts say. In an 
analytical note published recently, the policy research group IHS wrote 
of the two sides’ intransigence: “A new gas war between Russia and 
Ukraine could spark an actual war.”

But this time around, the middlemen may not have the same political 
capital to work out a deal. In the months after the Ukrainian 
revolution, such players have come under increased scrutiny for their 
business and political activities.

One 27-year-old gasoline trader in Ukraine was wholly unknown to his 
countrymen before the Ukrainian edition of the magazine Forbes wrote 
about him. Stung by the criticism, the young billionaire, Serhiy 
Kurchenko, bought the publication last summer, then hired a new editor. 
Mr. Kurchenko is now wanted in Ukraine for evading customs duties, his 
whereabouts unknown.

In addition to buying Ukrainian media to try to control criticism, the 
middlemen have also spread their businesses abroad. One former gas 
middleman and the prime minister of Ukraine in the mid-1990s, Pavlo 
Lazarenko, bought the actor Eddie Murphy’s Southern California home for 
$6 million. He later served several years in an American prison for 
money laundering.

Two court cases in the United States, one criminal and one civil, shed 
new light on Mr. Firtash’s operations — and the role of the gas 
middleman, not only in Eastern Europe but around the world.

In a civil court case in the United States District Court for the 
Southern District of New York, lawyers have argued that Mr. Firtash 
funneled profits from the Gazprom deal into supporting pro-Russian 
politicians in Ukraine.

The lawsuit against Mr. Firtash and RosUkrEnergo, a gas-trading company 
he co-owned with Gazprom, was filed in 2011 under United States 
racketeering laws and the Alien Torts Statute by Yulia Tymoshenko, a 
former Ukrainian prime minister and presidential candidate. It claims 
that Mr. Firtash first laundered a portion of the Gazprom funds through 
Manhattan real estate deals that also benefited an American political 
adviser of the former president, Viktor F. Yanukovych. Lawyers recently 
asked for additional time in the case to collect as evidence documents 
discovered in the Ukrainian presidential residence after the revolution.

In the criminal court case, federal prosecutors in Chicago recently 
unsealed an indictment accusing Mr. Firtash of bribing government 
officials in India after transferring money through American banks. Mr. 
Firtash was detained in Austria on those charges and is awaiting an 
extradition ruling.

Mr. Firtash has denied wrongdoing in both cases.

A lawyer involved in Mr. Firtash’s defense said that the businessman 
“categorically denies the allegations in the indictment and questions 
why the U.S. government went through so many years and so much tax money 
pursuing a case involving an Indian mine, Indian officials and a 
Ukrainian businessman.”

Of the case filed by Ms. Tymoshenko, the lawyer said, “Anybody who 
regards this case as serious needs to look at the history of frivolous 
RICO claims filed in New York and what has happened to them.”

Energy analysts and minority investors in Gazprom have long criticized 
the company for allowing middlemen to siphon off profits. Mr. Firtash, 
for example, had been buying about eight billion cubic meters of 
Gazprom’s gas a year at a price $95 to $105 lower — per 1,000 cubic 
meters — than what Gazprom charged the state energy company, Naftogaz, 
costing Gazprom about $800 million annually. Gazprom has said its 
pricing policies are purely commercial.

“Gazprom needs a middleman like a hole in the head,” said Ken McCallion, 
a lawyer with McCallion & Associates, a law firm representing Ms. 
Tymoshenko and other Ukrainian political opposition figures in the 
lawsuit. Ms. Tymoshenko, whose nickname is “the Gas Princess,” would 
know: Before entering politics, she was chief executive of a gas trading 
company, United Energy Systems of Ukraine.

“The middleman was there for one purpose, to grab some money and grease 
the operation of this political-industrial machine,” Mr. McCallion said.

Jonathan Stern, an authority on the European natural gas market at the 
Oxford Institute for Energy Studies, said Ukraine’s gas middlemen, 
whatever their role in politics, also helped Gazprom provide flexible 
pricing to Ukraine’s industrial gas customers, some of which would have 
been compelled to close factories if charged the full rate. In a letter 
to European leaders released this month, President Vladimir V. Putin of 
Russia noted that such discounts to Ukraine’s chemical industry most 
likely kept factories open and workers employed.

The New York lawsuit makes clear they also allowed a profit for Mr. 
Firtash. It traces his funneling money from Ukrainian gas deals to a New 
York real estate fund established with the help of Paul J. Manafort, a 
Republican political operative who advised Mr. Yanukovych on his 2010 
campaign in Ukraine.

In 2008, Mr. Firtash’s investment fund struck a deal to buy the former 
Drake Hotel on Park Avenue for $885 million, according to documents 
filed in the lawsuit. The fund planned to reopen it as a mixed-use 
retail and residential building to be called Bulgari Tower, named for 
the luxury goods brand.

Mr. Firtash and Mr. Manafort, who was a principal at the lobbying firm 
Davis Manafort Partners, solicited investors for the building deal. But 
the deal fell apart before it closed. Another senior partner at the 
firm, Rick Davis, was on leave while serving as campaign manager for 
Senator John McCain’s 2008 presidential race.

Despite numerous efforts, neither Mr. Manafort nor Mr. Davis could be 
reached for comment.

The criminal indictment in Chicago became public after Mr. Firtash was 
detained in Vienna on March 12 at the request of the Federal Bureau of 
Investigation.

The indictment accuses Mr. Firtash and associates of bribing officials 
in the Indian state of Andhra Pradesh to secure rights to mine titanium 
they planned to sell to Boeing. Boeing quickly broke off the deal and is 
not accused of any wrongdoing. Mr. Firtash wired about $18.5 million in 
bribes to Indian officials, some of it through American banks, court 
documents contend.

Mr. Firtash said, through a spokesman, that the case relates to an 
eight-year-old deal in India and reflects political spite, as it came so 
soon after the change of government in Kiev. Mr. Firtash’s lawyer, 
Dieter Böhmdorfer, the former Austrian justice minister, couldn’t be 
reached for comment.





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