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. Last Updated: 07/27/2016

Fraud Suspect Sticks to His Guns at Trial

Itar-TassOleinik, right, testifying to the military court at the start of his trial Tuesday. Finko, second from right, said Oleinik was the least of those guilty of the $450 million fraud.
In a case that prosecutors say exposes unprecedented corruption in the Defense Ministry, a former Defense Ministry finance chief went on trial Tuesday on charges of bilking the military of $450 million in 1996-97.

But defense lawyers, former Defense Minister Igor Rodionov and a State Duma deputy say that Colonel General Georgy Oleinik was framed in a complicated fraud scheme concocted by former top Russian and Ukrainian officials.

Oleinik, 58, sat outside the steel defendant's cage at the hearing in a Moscow military court Tuesday. Looking indignant, he refused to talk to journalists.

"Don't peep in my briefcase, you won't see wads of dollars inside," he snapped at reporters while sorting through papers in his leather bag.

The fraud scheme -- as generally agreed by both prosecutors and Oleinik's lawyers -- worked as such: Gas giant Gazprom borrowed $450 million from the National Reserve Bank and the Imperial Bank in 1996 and 1997 to pay taxes via the Finance Ministry. That money was then sent to the Defense Ministry's finance department, which in turn transferred it to British-based United Energy International Ltd., an agent of Ukraine's Unified Energy Systems, which was headed by Ukraine's then-Deputy Prime Minister Yulia Tymoshenko.

United Energy International then sent the money to Gazprom as payment for its gas supplies to Ukraine, and Gazprom repaid its debts to the banks.

As part of the scheme, the Defense Ministry was supposed to get $450 million worth of construction materials from Ukraine.

Instead, the military prosecutors say, the ministry got materials worth only $123 million and somebody walked off with a handsome profit.

Oleinik's lawyer, Sergei Dvoryaninov, told reporters Tuesday that the money had never physically left Russia -- the transactions all took place inside NRB and Imperial Bank, where all of the players in the scheme had bank accounts.

The two contracts that laid the framework for the scheme were signed by then-Defense Minister Rodionov and then-First Deputy Finance Minister Andrei Vavilov on behalf of Russia and by Tymoshenko for Ukraine. The contracts also carried the signatures of then-Gazprom CEO Rem Vyakhirev, his deputy, Vyacheslav Sheremet, the heads of NRB and Imperial Bank, and a United Energy International representative.

Oleinik's lawyers showed a copy of the document to reporters Tuesday.

More than three years after the transfers took place, in December 2000, Oleinik was charged with abuse of office by signing the payment orders and has been under house arrest since. If convicted, he faces up to 10 years behind bars.

Prosecutors say Oleinik was wrong to sign off on the money transfers since only the Russian government has the right to decide defense expenditures. Oleinik is also accused of violating a law on foreign currencies, as he had not obtained permission to send money to Ukraine from the Central Bank.

Last August, the prosecutor's office also charged Vavilov -- who now heads the Severnaya Neft oil company -- with abuse of office in the Ukraine deal. But the investigation was closed in October in the absence of corpus delicti, Vavilov's lawyer, Viktoria Kopytseva, said Tuesday.

The prosecutor's office told The Moscow Times at the time that if the $450 million fraud deal was proven, it would be a case of graft "unprecedented" in the history of the Defense Ministry.

The Oleinik trial began Tuesday with prosecutors asking judge Vasily Vinokurov to call as witnesses two financial experts from the Central Bank.

Oleinik and his defense protested, saying that in a preliminary investigation the experts had shown bias.

"The Central Bank had to control those ministry transactions, and the colleagues of these experts permitted all our operations," Oleinik said. "Now I feel no trust in these people."

The court rejected this objection as well as other petitions to invite Tymoshenko in for questioning and to introduce as evidence the closed Vavilov case.

Oleinik maintained his innocence in court, saying that he was only an executor of contracts that were compiled without his participation.

"I was obliged to comply because the contracts were signed by my immediate chief, the defense minister," he said. "When I called Vavilov at the Finance Ministry for advice, he told me to go ahead."

Rodionov said that the guilt in the scheme falls more heavily on the shoulders of participants who have not been charged -- primarily former Prime Minister Viktor Chernomyrdin and former Ukrainian Prime Minister Pavel Lazarenko.

"I believe that the key people in the scheme were Viktor Chernomyrdin and Pavel Lazarenko, who invented a system of plundering funds," he said in a telephone interview Tuesday. "They both pressed me to go ahead with this deal, and, as a Soviet officer, I was used to trusting my superiors."

Rodionov said that Oleinik could not act otherwise at the time because he had to obey orders.

He said that while he was in charge, the Defense Ministry had never tried to retrieve the money from its Ukrainian counterparts.

"The ministry was in such a terrible condition when I took over that this money was just a small problem among many others," he said. "And, in May 1997, President Boris Yeltsin sacked me."

Rodionov also said that he and Oleinik were new to the ministry when the scheme started in October 1996.

"It was just three months after I inherited the ministry, which was ruined under Pavel Grachev," Rodionov said. "And Oleinik was employed only six weeks before he signed off on this money transfer."

Rodionov also pointed the finger at Vavilov, saying, "Vavilov of the Finance Ministry is much guiltier than Oleinik."

Oleg Finko, the deputy head of the Duma's corruption-fighting committee, also stressed Vavilov's role at the court hearing.

"Oleinik is a third-tier figure in the deal," he said. "Vavilov, with whose help hundreds of millions of dollars disappeared in many similar episodes, must face the court."

Vavilov's lawyer, Kopytseva, retorted: "I understand that pointing fingers is just a way to defend Oleinik in the court. But it was Oleinik who was responsible for checking the credibility of his agents. That is why he cannot be acquitted on the same terms as Vavilov, who was responsible only for the proper routing of the money on its way from Gazprom to the Defense Ministry."

Tymoshenko could not be reached Tuesday.

Last August, the Prosecutor General's Office sent its Ukrainian counterpart evidence implicating Tymoshenko in the deal.

A spokesman for the Ukrainian prosecutor's office said by telephone Tuesday that several investigations are under way into Tymoshenko's financial activities during her spell in government. He could not immediately say whether the evidence from Russia had been added to any of those investigations or whether a separate case had been opened into it.

Tymoshenko now heads one of the main opposition parties in Ukraine and will participate in the country's parliamentary elections on March 31.

Contact information for United Energy International could not be found.