Shockwaves felt across CEE as US seeks extradition of Ukraine oligarch Firtash

By bne IntelliNews March 14, 2014

Graham Stack in Sevastopol -

The arrest of controversial Ukrainian oligarch Dmytro Firtash in Austria for extradition to the US has sent shockwaves through Ukraine and internationally. The man who for years personified the non-transparency of Ukraine's gas trade may be able to deliver US investigators valuable material for further cases if he cooperates, including perhaps ties to top Russian figures.

Under the terms of a mutual legal assistance act with the US, Austria's Federal Crime Agency said March 13 that Firtash was arrested in Vienna the previous day on charges brought by the Federal Bureau of Investigation. "As a result of the FBI's years' long investigation and warrant issued by a US district court, Vienna's district attorney issued a nationwide arrest order against the businessman," said a press officer for Austria's Federal Criminal Police Office.

The FBI is charging him with bribery and formation of a criminal association. Austrian police further specified that that the FBI has been investigating Firtash since 2006. The arrest was performed by the Austria's heavily armed special police unit Cobra, but no resistance was offered.

Firtash is now being held in a prison in the Josefstadt district of Vienna. According to sources in Vienna, the prosecutor's office now has 48 hours until the evening of March 14 to decide whether Firtash should be kept in detention pending extradition. Then an Austrian court will decide whether grounds for extradition exist, for which no specific time frame is defined.

No details have been released as to the specific offences for which the US is seeking Firtash's extradition. According to a statement from Firtash's Group DF quoted by Ukrainskaya Pravda, the arrest is connected to "an investment project in India in 2006 in which Firtash was involved." The statement denied any connection with current events in Ukraine, calling the arrest "a misunderstanding" to be "resolved in the very near term".

But the arrest in Austria may be the thin end of the wedge, leading to lengthy jail time in the US. Experts referred to the arrest of former Ukraine prime minister Pavlo Lazarenko in connection with his gas trading activities in Switzerland 1999. Lazarenko remained in jail until the end of 2012. "At first Lazarenko did not believe that it was serious," says Ukrainskaya Pravda journalist Serhiy Leschenko, who has written a book on the Lazarenko case. "But if it is an FBI request for arrest, then it is not a 'small misunderstanding' - it is very serious - so I would advise Firtash to seek a plea bargain with US investigators and to give up to them everyone they can."

Indeed, the Lazarenko case helped the FBI build up expertise relating to Ukraine's corrupt gas intermediaries, strengthening the case against Firtash, said a bne expert source in Washington DC.

Murky gas trade

Firtash's arrest is being seen as a US blow against Russia in connection with the current international crisis in Ukraine. Firtash first came to the FBI's attention in 2005-2006, due to the activities of murky gas trade Rosukrenergo, which imported cheap gas from Turkmenistan to Ukraine via pipelines owned by Russia's Gazprom. Later Firtash acknowledged ownership of 50% of Rosukrenergo, together with business partner Ivan Fursin, with Gazprom owning the other 50%. The huge profits on the trade came from Firtash being allowed to export some of the cheap Turkmen gas to the European market for several times the price, according to a report by the NGO Global Witness on the gas trade from 2006.

The gas intermediary business between Turkmenistan and Ukraine was traditionally closely linked to both organized crime and top political offices in Ukraine. At the country's birth in the 1990s, the gas trade prominently featured former prime minister Lazarenko and his associate Yulia Tymoshenko, and was regarded as being protected by Ukraine-born alleged mobster Semen Mogilevich, currently resident in Moscow. After Lazarenko's arrest by the US and the destruction of his business empire at the end of the 1990s, the gas intermediary business passed into hands of businessmen close to then president Leonid Kuchma. After Kuchma left power in 2004, it appears to have been largely monopolized by structures of Firtash, who has close documented links to Mogilevich, including co-ownership of offshores with a wife of Mogilevich. In a leaked US diplomatic cable dating back to 2007, Firtash acknowledged to the US ambassador to Ukraine that he had needed Mogilevich's protection to get his start in business. Firtash later denied making such comments.

Anti-Putin move?

International interest is focusing on Firtash's Russian links, given the current Russian occupation of Crimea and the threats of US countermeasures.

There is an assumption in the West that the gas trade did not just bring huge illegal revenues to top figures in Ukraine, but also to officials at Gazprom and the Kremlin, including even Russian President Vladimir Putin. According to a report on Firtash' gas business from 2006 by Global Witness: "Gazprom has let this lucrative role be taken over by the intermediary companies, some of whom were paid in Turkmen gas which they resold in Europe for up to four-times the price. Why would Gazprom, in effect, give up these lucrative markets and their profits to potential competitors?"

But whether there is a political component in the timing of Firtash's arrest is unclear. Firtash, a western Ukrainian, has never openly been a pillar of support for the Kremlin in Ukraine, although his TV channel Inter has been. Moreover, Firtash was in conflict with then prime minister Yulia Tymoshenko over the gas price deal she struck with the Kremlin in January 2009, which saw his intermediary business Rosukrenergo removed from the gas trade, and has constantly sought for the Ukraine-Russia gas deal to be overturned. He accused Tymoshenko of being a Kremlin agent, and is believed to have been a driving force behind her jailing in 2011 for having signed the gas agreement with Russia, allegedly without full powers to do so. Tymoshenko was only released from jail on February 22 following Yanukovych's flight from the capital.

The move is indeed likely to further impact in the short term on the already stricken Ukrainian economy, due to Firtash's huge portfolio of assets in Ukraine, consolidated in the sprawling Austria-based Group DF holding. Firtash has all but monopolized Ukraine's chemicals industry, titanium production and regional gas distribution networks; he owns two top-20 banks, Nadra and Pravex, as well as Ukraine's most influential TV station Inter; and has considerable real estate assets. Ownership of all these assets will be as of today up for grabs, and the fighting will not be pretty.

Firtash may have been simply easy pickings for the FBI looking to exploit the political climate that is turning against post-Soviet oligarchs in bed with corrupt and repressive regimes. "Being linked with Mogilevich, a man who has acquired almost mythic status in many US government perspectives on Russian and Eurasian organised crime, was a major strike against him," says Mark Galeotti, professor of global affairs at New York University. "He is high enough profile to be a tempting political target, even though he wasn't on the EU's list of oligarchs and major figures linked with Yanukovych's kleptocracy."

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