and the anti-trust campaign. The latter is the most impressive: although victims of the trust pyramid schemes organized numerous protests at the government offices, the protests gathered less than 10% of such people. This figure suggests that the majority of the population was not inclined to believe in the trusts from the very start. [...1 Fighting Corruption in Ukraine: Possible Options [...] Another option is to enhance media participation in fighting corruption. However, the problem of this option is that the press is also a part of tight competition, connected with corruption. Only the free press is able to raise the issues of power abuse irrespective of the position occupied by a particular official. However, the Ukrainian law imposes serious limits on journalism. For instance, Article 23 of the Law "On Information," "Information About a Person" prohibits gathering information about a person without the person's prior consent, except special cases envisaged by the law. Also, every person has the right of access to information collected about him or her. This stipulation makes investigative journalism illegal if it concerns financial activity of a certain official. Article 11, "Assistance to the Operative Investigative Activity," prohibits to involve in operative investigative tasks "medical personnel, the clergy, attorneys, is a person which is the object of the operative investigative measures is their patient or client." In several cases, journalists who had met their sources were forced to testify in court due to this law. [...] 9 1997 Ukrainian Center for Independent Political Research (UCIPR). Reprinted with permission. Louise I. Shelley, "Organized Crime and Corruption: Security Threats." Paper presented at College of Europe Conference, "Ukraine, Belarus and Moldova: What Security in Which Europe?" Natolin, Poland, April 25, 1997: 1-5. Dr. Shelley is professor of Justice, Law and Society at American University. Ukraine's very independence is threatened by its inability to satisfy its citizens' financial needs, a problem severely exacerbated by the endemic corruption and the hijacking of the privatization process by former members of the nomenklatura (party elite). Nationalism, a potent force for state construction in Ukraine, cannot alone counteract the corrosive impacts of crime and corruption. Crime and corruption, while severe problems in Moldova and Belarus and of great concern to the citizenry, may not be as significant determinants of their nations' future as general problems of governance. The Costs of Organized Crime In all three countries, organized crime is such a serious problem because the citizens perceive they have been "robbed" of the assets that they were to have inherited from the Soviet state. Instead of an emergent middle-class, almost all of the succesEURASIA 35 sot states have highly economically polarized populations with a small extremely rich new elite and a large impoverished population. The pervasive corruption and the penetration of organized crime into the political process is inhibiting the development of new laws needed to develop a democratic free market economy. According to the Ukrainian security service, 44 people with various degrees of criminal activity have already been elected to local political bodiesJ Citizens have lost faith in the integrity and capacity of the legal process which has proved incapable of solving even the most blatant of contract killings. Criminalization of the banking sector and the exploitation of the privatization process have occurred in all three states. The extent of these problems in all three societies distinguishes organized crime and corruption in the successor states from that of other countries with serious crime problems. Organized crime associated with banking and financial markets is more destabilizing than the more conventional elements of organized crime activity such as extortion, prostitution and gambling rackets. The close ties between the crime groups and the tax authorities impede tax collection. Crime groups use their ties with tax authorities to extort money from businesses who find it more advantageous to pay the crime groups rather than the exorbitant tax rates. Tax officials, paid off by crime figures, also share information they have with crime groups. These groups then extort money from businesses. The issuance of export and import licenses with favorable tax treatment to government officials and their favored associates is one of the mostly costly elements of the political corruption. Ukraine with the largest population faces the greatest costs of this preferential treatment, but the problem is not confined to this state. Money which should be collected as duty on oil and gas imports or other desired commodities is waived permitting officials to amass fortunes. Collection of customs duties is also not possible because crime groups have appropriated the functions of the state. Cargo is not submitted to customs officials for inspection but is instead diverted to warehouses and other facilities controlled by organized crime. Only one out of every three vans arriving from Turkey goes through customs 2 in Ukrainian ports. In Belarus, numerous shipments pass through evading the customs officials. Through these tax avoidance schemes, all three governments are deprived of the revenues they need to meet their responsibilities. The highly corrupted tax and customs services and the criminalized banking sector deprive the states of needed revenues. Lacking resources because of their failure to collect taxes and the heavy revenue losses through illicit and insider privatization, all three countries are unable to deliver on their obligations to their citizens--payment of wages, benefits, and provision of health care. Corruption and organized crime cannot easily be differentiated. Much of the crime committed combines access to information or goods held by government officials backed up by the use or threat of force by crime groups. Privatization has not proceeded as far or as rapidly as in Russia, but the insider privatization and appropriation of state resources by former Party officials and a criminal elite is commonplace in Belarus, Moldova and Ukraine. 36 TRENDS IN ORGANIZEDCRIME [ FALL 1997 The illicit privatization has occurred in mineral rich regions of Ukraine, at military bases in all three countries, in factories and in cities with valuable real estate) Blatant legal violations by the Ukraine State Property Fund were detected. Symbolic sums were paid for valuable state property and the funds gained from these sales were misused? Contract killings in all three countries are associated with this grab for property. Ukraine has faced this problem most acutely; battles over the redistribution of property in Donetsk and Dneprpetrovsk have led to contract killings. The most notable of these was the killing of Yevchen Scherban in November 1996, parliamentary deputy and one of the richest men in Ukraine. The murdered Scherban, in association with Donetsk governor Volodomyr Shcherban, had made the region's industrial sector one of the most privatized in Ukraine? The criminal-political nexus is affecting foreign investment. Publicly traded companies in the United States have an obligation to disclose notable problems with their partners, particularly when they have a role in management. Western companies trying to enter the Ukrainian market are discovering that they must often turn to local partners with close ties to the government whose own histories are often sullied. A recent example of this is the alliance between Mr. Ronald Lauder, a former United States Ambassador, and Mr. Vadim Rabinovitch who was imprisoned for economic crime for nine years during the Soviet period. The deal concerns Ambassador Lauder's Central European Media Enterprises which used Mr. Rabinovitch to establish ties with a Ukrainian studio. A license was issued for the deal despite the inierest of other companies in bidding and an existing moratorium issued by parliament. 6 Motorola recently announced its plans to withdraw from Ukraine, canceling a planned investment of $500 million. The Motorola announcement followed the Ukrainian government decision to award a license for mobile phones to Kyiv Star whose owners include an adviser to President Kuchma, a Cabinet Minister and a Ukrainian with links to organized crime] Conclusion Endemic organized crime and corruption are major threats to the viability and stability of Belarus, Moldova and Ukraine. Citizens perceive that the leadership of their countries are intricately associated with the criminalization of their societies challenging the legitimacy of their governments. The newly established and highly visible economic equality is particularly problematic for long term stability in countries where the mass of citizenry were educated in the socialist ideology committed to economic equality. The abuse of privatization has, therefore, much more severe social consequences in the Soviet successor states than in Latin America where economic inequality has existed for centuries and citizens were not educated in socialist ideals. Some domestic observers believe that Russia and many successor states will soon resemble highly polarized Latin American style societies where there will be neither consistent economic growth or long-term democracies? EURASIA 37 Belarus, Moldova and Ukraine will not implode like Albania from organized crime and corruption. Rather these dual problems are rapidly corroding the economies of all three countries depriving them of the resources they need to rebuild their infrastructures. With massive revenue losses and illicit capital flight, the three countries cannot satisfy their obligations to their citizenry. The economic assistance programs initiated by the World Bank, the International Monetary Fund, European Union and the United States are failing. Despite the investment of hundreds of millions of dollars of assistance, the endemic criminalization and organized crime are subverting economic reform. Corruption and insider privatization have contributed to the departure of major multi-national corporations from Ukraine. In Spring 1997, American companies planning to invest nearly $1 billion in Ukraine withdrew asserting that they could not function in the corrupted environment. This situation is jeopardizing extensive American aid to Ukraine. Ukraine, presently the third largest U.S. aid recipient, needs both financial investment and aid to be a viable country. The crime threat from Russia and other successor states may exceed any other security threat. The indigenous organized crime problems of Belarus, Moldova and Ukraine are sufficient to undermine all three countries. Nationalism, strongest in Moldova and Ukraine, may not be strong enough to counteract the debilitating effects of a criminalized economy and widespread corruption among the elite. With political will all three countries could address their domestic crime problems. But all lack sufficiently strong civil societies, a precondition to an effective fight against organized crime and corruption. The movement of criminals and criminal capital across borders means that the control of the problem is beyond the capacity of any single state. The viability of any domestic efforts to combat organized crime is consistently undermined by the penetration of crime groups emanating from Russia, the Baltics and the Asian successor. Notes 1. "Ukraine: Security Chief Warns of Local Mafia's Political Ambitions," FBIS (Foreign Broadcast Information Service)-SOV-96-219 Daily Report. 8 November 1996. 2. "Russia: FSB Colonel Appears Linked to Odessa Crime," FBIS-SOV-214-S. 13 October 1996. 3. L.I. Shelley, "Privatization and Crime," l 1 Journal of Contemporary Criminal Justice. No. 4, (December 1995), pp. 244-56. 4. "Ukraine Prosecutor Views "Tense" Crime Situation, Activities," FBIS-SOV-96-225. 13 November 1996. 5. Oleg Varfolomeyev, "Businessman's Murder Impacts Ukrainian Politics," Open Media Research Institute Analytical Briefs. 14 November 1996, Vol. 1, No. 462. 6. Douglas Frantz and Raymond Bonner, "A Cosmetics Heir's Joint Venture is Tainted by Ukrainian's Past," New York Times. 5 April 1997, p. A4. 7. Raymond Bonner, "Ukraine Staggers on Path to the Free Market," The New York Times. 9 April 1997, p. A3. 8. See for example, Maggie Mahar, "Russia's New Face," Barron's. 10 June 1996, p. 34. Reprinted with permission. 38 TRENDS IN ORGANIZEDCRIME ] FALL 1997