Inside the Belarus Network

Lukashenko and his cronies appear to have established a kleptocracy in Belarus, similar to that thought to operate in Russia, albeit on a smaller scale They rely on a maze of offshore entities to conduct their business, despite European sanctions. And they defraud ordinary Belarusians.

A country the size of Great-Britain and as populous as Belgium, Belarus receives less attention (online at least) than Andorra, a city-state in the Pyrenees mountains. But this is changing fast. Minsk worked in August as a peace broker in the ongoing conflict between Russia and Ukraine. The next presidential election is scheduled for 2015 and a number of representatives from the opposition already fear this vote will follow the same pattern of violence and repression that plagued previous elections. European journalists, lawmakers and citizens need to understand Belarus if they are to make sense of Eastern Europe in 2015. This is why we built The Belarus Network.

This investigation, funded by The Journalism Fund and by Canal France International was coordinated by Journalism++ and @Yakwala. It brought together a group of five journalists from as many countries, who mostly researched open source documents. Many articles have been written about the corruption of the Belarusian moneymen over the past twenty years, but there has been no systematic analysis of the data. We put the puzzle together and what it shows sheds new light on Belarus. The complexity of the maze is such that this task will likely never be entirely complete. To help journalists and observers, we have published a database of people and companies at Detective.io/detective/belarus-networks. Most links in the article lead back to the database so that you can check and further examine our sources. If you require any assistance, e-mail us at belarus-networks@Detective.io.

She grew up in Malta, an EU country considered a tax heaven by several international organisations where Peftiev was based in the early 2000's. Then, in 2007, he moved back to Belarus for good, probably at the behest of Lukashenko -- a choice his daughter will likely have regarded with withering resignation (she now lives in the United States). Peftiev was the most powerful of all Belarusian businessmen from the 1990's to the 2000's. He is believed to have amassed over a billion dollars through his various businesses. But unlike Russian oligarchs like Roman Abramovich or the late Boris Berezovsky who were based in London, Peftiev never escaped the orbit of Lukashenko.

His career began in 1993, when he created the joint venture BelTechExport. Its purpose was to export stockpiles of ammunition from the Soviet era to whomever cared to buy them (Belarus played a major role in the USSR’s defence industry). After the rise to power of Lukashenko, who campaigned on an anti-corruption platform, Peftiev performed an about-face by switching allegiance from the then-prime minister Vyacheslav Kebich to the Lukashenko camp. In those days, he developed ties to Viktor Bout, the famous arms dealer. BelTechExport supplied weapons and ammunitions to countries such as China and, allegedly, North Korea. It is also linked to the sale of fighter planes to the army of Laurent Gbagbo, the then president of Ivory Coast. These very planes were used to bomb a French army base in Bouaké in 2004, killing nine and wounding dozens. As late as 2007, a director of BelTechExport was embroiled in a scandal when parts for Mig-29 fighter jets illegally bound for Bangladesh were discovered in Latvia.

As the stocks of Soviet weapons dried up, Peftiev diversified his portfolio. In 1998, he took part in the creation of Mobile Digital Communications (MDC), a joint-venture that owned Velcom, a mobile phone operator that grew to become the country's main provider. He also added Aquadiv, a distillery, to BelTech Holding, which he controls. His stroke of genius was to create a betting company, Sport-Pari, together with Dimitri Lukashenko, one of the president's sons. He also hired Lilia Lukashenko, the wife of the president's oldest son as the director of Eastleigh Trading, one of his financial vehicles. With his business firmly intertwined with Lukashenko's direct family, Peftiev ensured that he would not end up in jail. But it did not prevent him from falling from grace.

Unlike most post-socialist countries, Belarus does not boast an oligarch class that enriched itself through large-scale privatisation. There are two main reasons for this. Firstly, Belarus has been reluctant to privatize the state-owned assets left from the Soviet era. Secondly, the idea that the state is the source of everything is still pervasive in Belarus, more than 20 years after the fall of the USSR. Therefore the deeply-ingrained idea amid the population that since Lukashenko controls the state, he can dispose of it as he sees fit and allocate factories and other businesses to his cronies on a whim. This prompted the british scholar Andrew Wilson to craft the term "minigarch" for wealthy Belarusians.

Lukashenko, for instance, recently approved the transfer – free of charge – of a state-owned, EUR 7 million vitamin concentrate plant to the Interservice Group, property of Nikolay Vorobey. As it happens, Vorobey is a close friend of Lukashenko.

The state takes as much as it gives. Although the details are hard to come by, mostly because many Belarusian deals involve companies based in British tax heavens which do not have to reveal the names of the beneficial owners. These involve several nominally private companies that are widely thought to act for the state. The so-called solvents scheme is a good example.

Under a special agreement, Russia granted Belarus the right to buy its oil tax free. In exchange, Belarus had to pay any export duty it collected on what is labelled as “petroleum products” back to Russia. In other words, Russia subsidised Belarusian oil. So as not to lose out on this opportunity, Belarusian companies working with Russia started to convert the oil and then exported it as “solvent” (a different category than petroleum products) so that export taxes did not have to be transferred back to Russia.

It is estimated that $1.5 billion was garnered from this scheme in 2012 alone, a sum that amounts to half of the country's GDP growth for that year. The companies involved in the scam all belonged to Yury Chizh, a top minigarch, and to Vorobey. It shows how the line between state revenue - such as customs duty - and private property became blurred under Lukashenko.

By making ownership documents utterly unreliable, Lukashenko made sure that the only path to wealth – and retaining it - was unquestioned obedience to him and his sons. To further deter any disloyalty, he regularly jails his "moneymen" and encourages rivalries. Andrey Shirai, for instance, was once the organiser of a smuggling scheme linked to the regime. He went to prison nevertheless. Among the arms dealers, Belarus's flagship trade, all CEOs but Peftiev were arrested and charged in the 2000's. Some claim that even Chizh, who is currently in favour with the regime, was arrested and jailed for a short while in 2010.

Russian President Vladimir Putin, Alexander Lukashenko and hockey star Vyacheslav Fetisov take part in a hockey game in Sochi on January 4, 2014.

MLukashenko is believed in academic circles to be pursuing autarky as a model of society for Belarus. When it comes to private money, nothing could be farther from the truth. The sale of the mobile phone company Velcom is an example of the kind of interactions between Lukashenko's cronies, international moneymen, European interests and tax heavens.

The mobile phone company was created in 1998 by Peftiev through his BelTelecom company and SBT, a Swiss company belonging to the Samawi brothers, two Syrian nationals. In 2007, the company's ownership was transferred to Austria's Mobilkom for EUR 1 billion. A group of Belarusian, Syrian and Austrian nationals profited handsomely from the sale. In order to avoid a public tender, BelTelecom sold its shares to SBT for EUR 400 million, which, in turn, sold them to Telekom for EUR 690 million. Net gain for the people involved: EUR 300 million in just a few days.

The very profitable sale did not mark the end of the Samawi's Belarus activities, quite the contrary. Through an offshore vehicle in Cyprus, they invested in several property development projects in Minsk. In the case of one, their son, Khaled Samawi - a well-known art-gallery owner in London, Beirut and Dubai - even opened an art gallery with the help from the daughter-in-law of none other than Lukashenko himself. (Contacted by e-mail, Khaled Samawi denied this, which was, in turn, reiterated once more by the Belarusian journalist that reported it).

Another key player in the Velcom sale was Martin Schlaff, a businessman from Vienna with ties to both the Austrian establishment and the Eastern European underworld. The sale of Velcom, which he masterminded, earned him a whopping EUR 1.8 million euro in consulting fees. He was not new to Belarus. In 2002, Schlaff, together with the Autrian Olympic Committee (AOC), organized a winter holiday for Lukashenko in the Alps. He went his capacity of head of the Belarusian Olympic Committee. Once there, he managed to talk business with Leo Wallner, the head of Casinos Austria, who incidentally was then the head of the AOC.

Alexander Lukashenko welcomes Ukrainian President Petro Porochenko, Kazakh President Nursultan Nazarbayev and former EU foreign policy chief Catherine Ashton in Minsk on August 26, 2014.

After the 2001 presidential election, the Belarusian government decided not to extend the visas of monitors from the OSCE, an intergovernmental organisation, in effect closing down their office. In retaliation, the European Union and the United States implemented an asset freeze and a travel ban for 50 top Belarusian officials, including Lukashenko. The sanctions were lifted once in late 2003 as a token of goodwill, then re-introduced after the rigged 2006 presidential election, then lifted again in exchange for the release of political prisoners in 2008. This effective use of sanctions as a means of bartering lead some commentators to say that the sanctions were working.

However, in late 2010, the Belarusian regime cracked down on the political opposition that emerged after another rigged presidential election with a level of violence unseen since the 1990's. In reaction, the EU stepped up its sanctions programme, forbidding anyone linked to the repression from travelling to Europe and freezing their Western bank accounts.

While the travel ban is still effective – many high-ranking officials have been denied visas – the asset freeze does little to hamper the plundering of national resources in Belarus and the investment of ill-gained profits in Europe. In 2012, for example, Peftiev was still using a company in Malta.

The use of offshore companies, especially in the British Virgin Islands (not part of the EU but ruled by an EU member state), enabled Belarusians to conduct business in the EU with impunity. US diplomats noted that individuals mentioned on the sanctions list, or fearing being added to the list, used their children to conduct their business in Europe. The daughter of former prime minister Sergei Sidorsky, for instance, is believed to have conducted a money laundering business in Germany.

The efficacy of the sanctions is further reduced by European governments prioritising the interests of certain corporations. Slovenia, for instance, pushed hard in 2012 to keep Chizh off the list. Companies belonging to Chizh were engaged in business with a Slovenian mogul, Janez Škrabec, head of the Riko construction group. In 2013, French MPs travelled to Minsk in 2013 to lobby for French corporations, including Bouygues, a construction group. Could the Belarusian interests of French corporations have lead Paris to mollify its diplomatic stance toward Lukashenko? We asked the Council of the European Union for the positions of all member states during the negotiation of the sanctions but our request was denied.

Some sanctions do work. Anatoly Ternavsky, a businessman on the EU sanctions list who is close to the presidency, filed a lawsuit in Cyprus regarding a dispute with a Russian oligarch. One of his companies in the British Virgin Islands owned a company in Cyprus, which in turn owned assets in Russia. In other words, the only link to the EU was the fact that the company was registered in Cyprus. In April 2013, the Cypriot Supreme Court ruled that he had no right to do so as it would have given him access to business in the EU.

Sanctions might estrange a father from his daughter, or prevent a moneyman from appearing before court. Alexander Atroshchankau, a Belarussian journalist and human rights activist, considers such targeted sanctions a very effective means of obtaining results, especially regarding the release of political prisoners. It remains to be seen whether this technique will remain effective now that Mr Lukashenko aspires to plays the role of the honest broker in Eastern Europe.