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USAID Georgia
and IFC Funding are
Targets of Banking Fraud |
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| By Philip O' Cealligh & Jeffrey K. Silverman |
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Organized crime in Georgia is one of the most prevalent problems facing banking re-gulators and the in-ternational commu-nity. There are two
clear-cut cases of banking fraud that, although separate, in many ways describe the panorama in viewing Georgian financial institutions in recent months. The
way that he United States Agency for Inter-national Development (USAID) and the US Embassy reacted to a clear-cut instance of banking fraud may be more
reflective of political expediency, especially when banking fraud is but the tip of the iceberg for more ominous crime that cuts across international borders.
New sources with investigative reports link the looting of Georgian banks with high stakes trafficking of weapons and financial cover-ups that reach the highest
echelons in both the Georgian Security agencies and international organizations (including those funded by US and European taxpayers). Banking and Security Agencies.
The first case of fraud involves Shore Bank, a subsidiary of Shore Bank Corporation, a US commercial holding company that is highly recognized as an international
leader in economic development and community building. Shore Bank Managers and Georgian banking employees are implemented in having stolen money directly from bank
accounts that held on deposit international development money belonging to USAID. Shore Bank in Georgia operates in close partnership with the International Finance
Corporation (IFC) and uses World Bank Credit lines and USAID grants in carrying out targeted loans for economic development. Working together, the Caucasus Small and
Medium Income Finance Project (CSFP) is a joint project that began in 1997 as a five-year project designed to develop financial services and institutions that meet the
needs of small and medium enterprises. Shore Bank had USAID funds on deposit in the Tbilisi Business Center (TBC) Bank, considered by Murtaz Kikoria, Head Investigator of
the Georgian National Bank, as one of the best banks in Georgia and the Caucasus. In order to extract the money from the bank and cover the action, false monthly banking
statements were generated and funds were taken out in installments for almost one year without the knowledge of either Shore Bank and or TBC). Nino Stepanishvili, Shore
Bank's office manager also conspired with the Georgian tax inspection service and several banking employees in "pulling off" illegal withdrawals that added up to $75,000
to $100,000. Much of this money was used for the direct benefit of friends and close companies.
USAID basically paid for a foreign vacation for one Georgian young man who was close to the local office manager and cell phones were provided to friends. As if the above-mentioned situation was not difficult enough, confidential sources in the
Georgian government strongly believe that the bank losses were targeted as part of a slush fund for arms purchases that benefit Chechen fighters and special joint operations.
"Pay up and shut-up!"Part of the money was recovered but Shore Bank was forced to absorb most of the loss. Michael Farbman, Head of Mission, USAID Caucasus instructed Gerry Anderson,
Director of Office of Economic Restructuring, USAID Caucasus to put a lid on the scandal. Gerry told Shore Bank representatives during a meeting in late summer of 2001 held in the
USAID office to: "Pay up and shut up." Later, when the Michael Farbman, discussed the case with Nino Kidnadze, an investigative reporter with the English Language Georgian Times on
May 17, 2002. He told how Shore Bank had paid the difference between what was recovered and the total loss. However, both the USAID Office of Inspector General (OIG) in Hungary and
the US Embassy in Tbilisi refused to comment on several previously made requests to obtain information on banking fraud and connections to security agencies.
Micro Finance Bank of GeorgiaThe second case, involving gold, is most likely one of the most colorful instance of corruption in recent years with a level of collaboration and intrigue that is better
suited for TV production. The Micro Finance Bank of Georgia (MBG) is a majority-controlled bank with prominent international stakeholders that range from the German State Development
Bank, TBC and the IFC of the World Bank group with an operating capital of 10 million dollars. The bank announced in its annual report and a press release that it lost $700,000 in
connection to a well-crafted corruption scheme that involved short-term loans in which little or non-existent gold was used as alleged collateral. Security agencies, banking and
others with the best "roofs" - mafia term - for high-level protection, were involved, and even now, many are still in the dark how the wool was pulled over the eyes of the bank
and the stockholders. Basically, Giorgi Nadiradze, the official appraiser made a deal with at least two outsiders and a somewhat well-connected individual (name withheld per
request by sources) to provide loans for more than the actual value of the gold that was then used as collateral. Consequently, according to Alexander von Gleich, General
Director of MBG bank, in an April 23 interview, "money was lost and we realized the loss in the audit held in January that we had been taken. It is still difficult to fully
understand how so many people did not react to the flags - this was our mistake, we admit it and have since corrected all internal policies and procedures." Status of
InvestigationIn comparison, one can see that the mechanisms used in these two cases of banking fraud were different. But what is even more notable is the final
outcome in how these cases were addressed. In the gold fraud, the players are being brought to justice under corruption and criminal law. However, in the Shore Bank
case, USAID, with agreement from the investigative wing, OIG, decided to cover-up the fraud and allow the person(s) to walk free upon paying back but a fraction of
the loss (approximately $17,000). In the Shore Bank case, it is not just that money was stolen while regulators appear to have looked the other way that was so
embarrassing, but that the highly prized USAID-trained Georgian tax inspection participated in the looting. Money was not only taken from the bank account, but
revenues that were to flow into state coffers from Shore employment taxes went missing - this money was to be credited directly from TBC. It will take the joint
effort of several regulatory and international organizations working together to face the fallout of corruption in Georgia. Later Shore bank was forced to pay a fine
for not paying taxes to the Georgian government. Scotland Yard and BankingThe level of banking intrigue is reinforced with film and documentation and both internal
and external investigative reports on how weapons are purchased from middlemen and are then passed along to Chechen fighters.
The international community is now beginning to seriously question the state of affairs of Georgian banking when Scotland Yard investigators arrived to Tbilisi in late June, the capital of Georgia
to investigative the violent and controversial June 18, 2002 kidnapping of Peter Shaw, a European Banker who has been the man on the ground overseeing the EU funded
Georgian Agribusiness Bank. Peter Shaw was kidnapped by well-armed men in a suburb of Tbilisi just days prior to his final departure to England and it is not for
certain if he is still alive. Senior Georgian Officials have admitted that this kidnapping has tell tale signs of a professional job that was most likely carried
out by government security forces. "Valeri Khaburdzania, Minister of State Security (former KGB) said on Georgian TV shortly after the kidnapping. "It is likely
that only well trained units could commit such a crime." One experience conflict zone foreign journalist pulled it together this way: "There are many rumors about
the reason behind the kidnapping, especially as to the motivation but regardless, "it is the trend that is more important" - not getting too deep into the cloak and
dagger stuff." The most likely story involves the proposed tender for the privatization of the Georgian agribusiness bank since the "short-list" of companies included
interests connected to an Irish bank that is on the CV of Peter Shaw. Moreover, a turf battle developed between a group connected with the current Georgian Minister
of Agriculture, who sources in the Georgian anti-terrorism unit claim was putting together a group to try to take the bank into their own hands. It is no wonder why
Mr. Shaw is considered by many in the Georgian Government, especially the Georgian Ministry of Agriculture, as one of the most corrupt individuals in the country - especially
as being a corrupt representative from the international community. As one banking employee who worked with Peter Shaw concluded, "Closer to a real motive are the circumstances
whereas Shaw in his forced forcing intermediary banks to cover bad loans, and in some cases, some these cooperating banks, much to their dismay, had to cover substantial losses.
Two banks in Tbilisi went broke and Shaw had a track record of being close to bank failures in previous postings. Moreover, the way the Georgian Agribusiness bank was set-up was
in violation to European law when professional EU-staff members were listed as shareholders. Obviously a major embarrassment to official Brussels and policy makers who were looking
for damage control. Chechen ConnectionHow do the Chechens fighters support their military actions against the Russian Federation? Obviously some money may have come from Middle
Eastern sources, terrorist or otherwise, but definitely not from the official and empty Georgian budget. Confidential sources in the Georgian Ministry of Foreign Affairs and banking
regulatory bodies believe that international development funds and credit lines are often targeted as part of a slush fund for arms purchases that benefit Chechen fighters and special
joint Georgian-Chechen operations. The Georgian military incursion into the contested Kodori region in West Georgia last year was paid for with an array of funding. Moreover, this
operation is claimed by the local media and the watchdog Liberty Institute, a NGO, as being "organized and financed by security agencies and private interests with ties to banking.
"Firstly, such instability provides cover for all sort of illegal and profitable activities with protection from the top level in government and acts as a diversion to pressing social
issues. Moreover, it serves national interests in portraying Georgia and the struggling leadership of Eduard Shevardnadze as in need of outside military and economic assistance far
in excess of actual need or ability to effectively utilize or repay. Gun RunnersThis begs some very basic questions for many observers. "Were the Russians correct in many of their
wild allegations about the real business of the Georgian State. Only because of the ineptitude of the front line gun dealers the story behind the story finally surfacing to the top.
In dealing with the festering of an open wound of creditability in financial circles there are many factors that must be considered. These impact the very basis of the Shevardnadze
administration and the rational for engagement in that part of the world. The validity of the 64 million dollar US Train and Equip program, a military training program which many,
including Georgians themselves, consider to be nothing but a ploy of positioning for geopolitical games that is staked to the advantage of a Western orientation and multi-national
oil companies. Follow the moneyFinding the truth will require "following the money" and dig deep into international and local banking operations.
The main allegations involve Georgian Banks and their role in pilfering funds for special operations with oversight by security ministries, or is there a well organized plan by security and KGB handlers
to use the banking system for literally laundering money earned in criminal activities, including drug dealers, or a combination of both? Akaki Gogichishvili, producer and
anchor of the popular 60 Minutes, an investigative Georgian Rustavi 2 TV program and the author have been sharing notes and finding common ground in the last few years is
discussing the connections with corruption and banking, which is likely expanded to the trafficking of weapons. There now appears to be a solid connection between a
well-established pattern of trafficking in weapons and a plethora of illegal activities. Often these players operate with impunity, even when international funds are
involved. It is well established, according to Akaki and other sources, that several high-ranking Georgian officers are former members of Soviet intelligence units
such as KGB and GRU (Military intelligence). The trade dates back to 1994 when containers of weapons were being exported from Georgian ports with the full knowledge
of top government authorities. Akaki and the author were the first to make the connection between transport of weapons and various levels of intrigue.
A Russian investigative journalist working with RTR Television made the same conclusion when his film crew filmed closed trucks carrying alleged humanitarian assistance in
March 2002 in the Pankisi Gorge region of Georgia. The editor of "Azerbaijan Today" participated in this Russian investigative report by providing supporting
internal document from the Organization for Security and Cooperative in Europe (OSCE) that confirmed gaps in the border regions where weapons and Chechen
fighter are said to be moving freely back and forth. US State DepartmentMany of these documents, including contracts, have since been turned over to the
special agent of the US State Department, Office of the Inspector General (OIG). The sorted history of banking is explained in the former Soviet Republic
of Georgia and connections to the Georgian Border Guards and some agents working with the border guards and the Organization for Security and Cooperation
in Europe. The US State Department is especially interested where their donated equipment disappeared or was grossly misappropriated.
The road leads to those closest to the head of the GBG, Valeri Ckheidze. Presidential FundMoreover, one contract for international assistance directly implicate a NGO
involved with Edward Shevardnadze in money laundering operations - "The Presidential NGO" in the amount of 750,000 million dollars over a period of
five years.
The weapons trade in Georgia is rather complicated. Akaki Gogichaishvili, says that Zasa Mazmishvili, Head of the Georgian Military
Counterintelligence, backs the activities of Tristan Tsitelaslhvil, a Georgian General in the arms trade. The same was confirmed by the Georgian
anti-terrorism unit to the author, "saying that he is working for us in gathering information on the Russian and foreign involvement (terrorist)
in the weapons trade. Approximately one month later these allegations were confirmed when Simon Mchedlidze, a major of the State Security Service
was intercepted on June 17, 2002 with a Land Cruiser of Russian made weapons in route to either Pankisi, Chechyna or Georgian guerilla groups
operating in West Georgia (Forest Brothers). Driving deeper into the murky waters on the war on terrorism and international banking fraud, there
appears a well developed system of looting of banks, non-governmental organizations, money laundering and trafficking in weapons that has developed
an absolute advantage. Moreover, with the kidnapping of Peter Shaw, Director of the European Union funded Georgian Agri-business Bank, there is
obviously much more than meets the eye, which leads us from the local to the global and to expose connections between seemingly unrelated events.
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