#17
Bin Laden charge triggers Prague denials

PRAGUE, Czech Republic, Jan. 14 (UPI) -- Prague officials scrambled Monday to deny a Moscow newspaper's claim that an investment firm with ties to Osama bin Laden will earn about $770 million for arranging a Russian debt-payoff deal with the Czech Republic.

The office of Jiri Rusnok, Czech finance minister, said the investment firm Falkon Capital was cleared by both the Czech and Russian parties.

But the bin Laden allegation, appearing in the independent weekly Novaja Gazeta, was only the latest in a months-long string of intriguing reports highlighting the mysteries of the Czech-Russia-Falkon deal.

Prague journalists, opposition politicians and even the Czech government's intelligence service started raising caution flags when confidential talks on a debt agreement began last spring.

Russia has owed the Czech Republic about $3.6 billion since the fall of the Soviet Union 12 years ago. The size of the debt was set in 1994, but efforts to settle dragged for years before the first sign of progress was announced last April.

Eventually the talks led to an agreement signed by Russian Prime Minister Mikhail Kasyanov and Czech Prime Minister Milos Zeman in Prague in October. The deal was closed Dec. 19 when Falkon agreed to pay the Czech government about $570 million for $2.5 billion, or about two-thirds, of the Russian debt. The rest of the debt will be negotiated later.

Although basics of the deal were publicized -- and even hailed by Russia as a landmark precedent for its future debt payoffs -- officials involved in the talks kept most transaction details secret.

Rusnok said privacy was a condition stipulated by Falkon and the Russian government. But the secrecy -- as well as uncertainty surrounding Falkon's activity and financial backers -- fanned suspicions and helped journalists fill Prague newspaper columns for months.

News of Novaja Gazeta's report moved as a bulletin Monday afternoon on the Czech news wire CTK. Within an hour, Rusnok, Zeman and other officials were responding to a flood of media calls.

In his story, Novaja Gazeta reporter Oleg Lurje claimed that Falkon is a daughter company of the Saudi BinLaden Group, the multibillion-dollar construction company operated by bin Laden's family. Although the family says it has disowned the terrorist mastermind -- and denied him any stake in the company -- Lurje asserted proceeds from the Falkon deal "will flow smoothly in the direction of Osama bin Laden."

The report said Falkon would receive $1.35 billion from the Russian government, including $580 million in cash. Most of the cash was to be transferred directly to the Czech government. The non-cash payment to Falkon was in the form of about $770 million worth of credit toward future sales of Russian-produced electricity, stretched over several years.

The report called the Russia-Falkon deal "extremely tangled" and "difficult" for any government agency trying to monitor the cash flow. But essentially Falkon -- and allegedly by extension, Osama bin Laden -- was to make $770 million from the deal.

Gazeta's allegation of an Osama bin Laden connection to Falkon was emphasized with a schematic diagram of Saudi BinLaden Enterprises that the reporter said came from an American source.

Although little is known about Falkon, even among financial analysts in Prague, the firm won the exclusive right to bargain with Moscow and Prague last summer, after the two governments agreed to settle the debt. The preliminary agreement was penned in June at a private meeting in St. Petersburg between the Czech and Russian prime ministers.

The final agreement was supposed to be signed in July. But the process was delayed. That's when allegations of bribery and organized crime began to surface.

An intelligence report written by the Czech Ministry of Interior and obtained by a Prague newspaper suggested Falkon may have ties to the Russian mafia and "foreign intelligence services." However, the report did not stop the dealmaking.

Journalists also discovered through police reports that, in July, Falkon director Jozef Cimbora lost a suitcase in Prague stuffed with $180,000 in U.S. currency. The suitcase and cash was recovered, but Cimbora never explained why he had the money, and the finance ministry declined comment.

A few days before the final agreement was signed in October, the economics newspaper "Hospodarsky noviny" -- an affiliate of The Wall Street Journal Europe -- charged that Falkon was tied to a heating-oil tax scandal. That same month the political weekly "Respekt" claimed Falkon might use the debt transaction to launder millions of dollars in dirty money.

Opposition politicians also joined in criticizing the debt settlement. Leaders of the Freedom Union party, for example, filed a lawsuit against the Social Democrats-led cabinet for refusing to release the Falkon contract.

And the anti-corruption watchdog Transparency International has been monitoring developments. "It's definitely very suspicious," said David Ondracka, an employee at the group's office in Prague.

Rusnok, the finance minister, has insisted that a variety of fiscal controls were implemented to guarantee the legality and safety of the deal. The $570 million cash payment from Falkon, for example, was to be "sanitized" by auditors to make sure the money was not from criminal sources.

The cash, in U.S. currency, was deposited just before Christmas at a Prague branch of Deutsche Bank. Eventually it was to be converted into Czech currency and transferred into a government account at the Czech National Bank.

Monday night on Czech Television, the Moscow reporter Lurje said he was "dead certain" that Falkon was connected to the bin Laden organization.

But Zeman, the prime minister, rejected the claim. He said all Czech companies were thoroughly examined after Sept. 11 for possible ties to terrorists, and Falkon "was not on the list."