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Cablegate: Turkmenistan Corruption: What Happens In

Published: Fri 14 Dec 2007 08:08 AM
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PP RUEHAG RUEHBI RUEHCI RUEHLH RUEHPW RUEHROV
DE RUEHAH #1348/01 3480853
ZNY CCCCC ZZH
P 140853Z DEC 07
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 9871
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 3097
RUEHBJ/AMEMBASSY BEIJING 0912
RUEHKO/AMEMBASSY TOKYO 0786
RUEHIT/AMCONSUL ISTANBUL 1362
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 1988
C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 001348
SIPDIS
SIPDIS
STATE FOR SCA/CEN, EEB
AID/W FOR EE/AA (BOB WALLIN)
PLEASE PASS TO USTDA DAN STEIN
E.O. 12958: DECL: 12/14/2017
TAGS: EIND ETRD PGOV PREL TX
SUBJECT: TURKMENISTAN CORRUPTION: WHAT HAPPENS IN
ASHGABAT, STAYS IN ASHGABAT
REF: A. ASHGABAT 1335
B. ASHGABAT 1047
Classified By: XXXXXXXXXXXXX for reasons 1.4 (B) and (D).
1. (C) SUMMARY: Corruption and nepotism remain problems in
Turkmenistan, and Turkish firms and Bouygues have done
particularly well in the lucrative construction industry
because they have mastered the business environment here.
Bouygues CEO Martin Bouygues' close and direct relationship
to the president of Turkmenistan is an open secret. A
well-connected member of Turkmenistan's international
diplomatic community alleged that the price for introductions
to the president have risen from ten to 15 percent since
Niyazov's death. He also alleged that construction contract
prices are so high because construction companies must add 20
or 30 percent to their bids just to cover bribes -- and that
President Berdimuhamedov is engaging in more construction
contracts in order to amass more personal wealth, of which
Avaza (Ref. A) is a part. With all agreeing that corruption
is as much a part of Turkmenistan's business environment as
ever, the need to compete with firms not bond by U.S.
anti-corruption laws adds a new layer of complexity and
uncertainty for U.S. firms wishing to do business here. END
SUMMARY.
CONSTRUCTION INDUSTRY: MOST VISIBLY CORRUPT INDUSTRY
2. (C) At a dinner on December 4, a group of ambassadors
lamented that the Government of Turkmenistan awards
construction contracts only to Turkish firms, and XXXXXXXXXXXX
alluded to the "special" arrangement that French construction firm Bouygues
holds with Turkmenistan's government. When questioned
directly about the veracity of the rumor that Siemens is
encouraging the government of Turkmenistan on the idea of
installing one main satellite dish per building, XXXXXXXXXXXX
acknowledged Siemens' corrupt business practices. On December 5,
XXXXXXXXXXXX gave a wide-ranging account of his views
of corruption in Turkmenistan. The source said that
"Bouygues has not done $1.2 billion in work over the past
years only on the basis of the quality of their work," and
added that XXXXXXXXXXXX's comment about Bouygues probably
was in reference to the direct, personal relationship that
CEO Martin Bouygues has had with the former and current heads
of state of Turkmenistan.
PRICE HIKE FOR PRESIDENTIAL INTRODUCTIONS
3. (C) XXXXXXXXXXXX recently estimated that, based on
current rumors, bribes to senior officials for meetings with
the president have risen from ten percent under former
President Niyazov to 15 percent under President
Berdimuhamedov. XXXXXXXXXXXX emphasized,
however, that bribing is a private affair, which only very
few people in any given firm aware of it. Whatever happens
between Bouygues and Turkmenistan's president -- former or
current -- in all likelihood stays between them.
BRIBES AREN'T FREE -- SOMEONE PAYS
4. (C) XXXXXXXXXXXX also gave one
explanation for what seem to be very high construction
project costs in Turkmenistan. Alleging that the Government
of Turkmenistan owes everyone money, Turkish construction
firms and Bouygues begin work only after receiving a down
payment. (NOTE: According to the source, John Deere
distributor IPC just started taking unconfirmed letters of
credit. END NOTE.) Because it is very likely that the
Government of Turkmenistan won't pay the last ten percent,
ASHGABAT 00001348 002 OF 003
companies routinely add an additional ten percent to the
final negotiated price. Because corruption runs all the way
down to subcontractors, construction companies usually tack
on another 20 or 30 percent to the project price to make up
for the bribes that the various parties have to pay along the
way.
TEXTILE MINISTRY DETERMINED TURKISH MANAGERS OVERCHARGED
5. (C) The source said that the Ministry of Textiles became
suspicious and began checking on the actual prices of spare
parts bought by Turkish co-managers at joint-venture
factories. Ministry officials verified that the Turkish
partners grossly overcharged the Ministry for parts -- but as
the source explained, the managers "have" to add on
surcharges/bribes anywhere they can, including spare parts,
because they have to pay off Ministry officials to stay in
partnership at the factory. (COMMENT: This story about the
Ministry of Textiles seems to be consistent with the rumor
that Ahmet Chalik may have played a significant role in the
imprisonment of Minister of Textiles Jemal Goklenova under
President Niyazov because she favored eliminating Turkish
managers from the textile factories in order to let Turkmen
manage the factories themselves (Ref. B). END COMMENT.)
MORE RUMORS ON THE BIG TURKISH CONSTRUCTION COMPANIES
6. (C) Formerly prominent Turkish construction firms such as
Nursel, headed by Ibrahim Kollek, are out of favor. Rumors
of a falling out between Kollek and the Government of
Turkmenistan abound in Ashgabat, as well as a rumor that
Kollek filed a lawsuit against the government of Turkmenistan
in Turkey.
PRESIDENTIAL CORRUPTION...
7. (C) According to the source, there is an understanding
that higher-up officials should dole out a portion of these
bribes to their minions, and former President Niyazov
reportedly cracked down on those taking bribes who didn't
share the wealth with others down the food chain. From all
appearances, President Berdimuhamedov is engaging in the same
behavior, as Turkmenistan watchers and experts such as this
source have the impression that Berdimuhamedov's desire to
accumulate wealth is the motivating factor behind the many
large contracts the government engages in. Also, rumors
persist that provincial governors have to pay a bribe of
$100,000 for their jobs.
...PERHAPS AN EXPLANATION FOR THE MYSTERY THAT IS AVAZA?
8. (C) The source mentioned the Avaza Tourism Zone (Ref. A)
as an example of corruption -- and lack of any understanding
of infrastructure development -- in Turkmenistan. Depending
on the moment, the project plays the role of a free economic
zone, a touristic zone, or a port development project. As
the source pointed out, in a properly organized port
development project, studies on traffic and passenger flows
and architects' studies should precede work, and planners
would allocate approximately ten percent of the entire budget
to pay these technical experts before work began. As far as
anyone can tell, none of these studies have been done or
planned for in the Avaza budget, but planners expect to spend
$2.8 billion to upgrade the completely dilapidated jetties
and wharfs at the port alone -- including $212 million for a
seven-kilometer canal alone.
THE "RIGHT SORT" OF COMPANY
9. (C) The source said that a company offered one of his
contacts a 2.5% commission for introducing the "right sort"
ASHGABAT 00001348 003 OF 003
of European contractor -- i.e., a contractor with a sterling
reputation -- with the ability to disguise bribes from
auditors. The source refused to give any sort of identifying
information about his contact, but said that "people who
studied in Moscow have the right contacts," adding that "not
everyone has access" (to Russians in the know and who have
ties to Europe.)
WHERE IS THE MONEY KEPT? NO ONE KNOWS.
10. (C) All of this being said, no one knows the precise
mechanics of corruption due to anti-money laundering
procedures currently in place in the United States and
European Union, which require various proofs of identity and
residency in order to open a legitimate bank account.
However, the source said that XXXXXXXXXXXX
-- a former deputy minister -- has an account at Citibank in New York.
Some also suspect that, despite the Baltic countries'
ascension to the EU, Baltic banks are not following
anti-money laundering procedures, since many Turkmen citizens
have Baltic bank accounts.
11. (C) COMMENT: Although Turkmenistan is in a period of
reform, corruption is here to stay, at least for the
foreseeable future. Nevertheless, this aspect of doing
business in Turkmenistan is not dissuading others from
wanting to enter the market, since there still seems to be a
common acceptance that bribes are an integral part of the
bidding and pricing system. But for U.S. firms wishing to
enter Turkmenistan's business environment, the need to
compete with firms not bound by U.S. anti-corruption laws
adds a new layer of complexity and uncertainty. END COMMENT.
XXXXXXXXXX
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