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November 3, 2012 / joninews

Corruption Stories that nobody wanted to hear in Georgia, especially the US Embassy!

Stories that nobody wanted to hear in Georgia:

“history of corruption that never ends”



Dairy of a muckraker: 

Jeffrey K. Silverman

Here are several areas that I interested in writing about, including the full story of Roddy Scott and what has really happened in Pankisi, the motivation, and especially his networking with Chechen fighters.


Here is a cross section of the areas that I have been working in the last few years. Hopefully you may have some better contacts in finding a home for such articles. Please feel free to work this over as you feel fit in making a pitch to Time or Newsweek. Things are a bit slow now, until Bush bombs Iraq and the timing might be right.


I shall look forward to working with you on some of these and other stories in the future.


Pankisi and Geopolitics


Georgia lies in a region where there are many unexploded zones of conflict and is it possible by helping the Georgia the United States and others are in fact doing more to tear it apart. Media reports are often written from a distance and much of what is published is not true. Everybody has been talking about the Pankisi “Gorge,” and lying about it.


When you are a journalist it very important to see a situation close and not to trust what you have read in the media or heard. People and countries have many reasons to lie about a situation, and by having been to Pankisi several journalist have information that contradicts what is being reported in the West.


Roddy Scott, a killed British journalist who wrote in response to an unedited article that was later published by the Eurasianet ,”Walk in the Country” about the situation in the Pankisi gorge, “I personally think it’s a great story, its about the first time I have ever seen the possibility for someone to really lift the lid on everything, rather than the usual ‘journo-grasping-at-straws-with-no-good-sources’ which seems to emanate from the region. And what really gives it the boost is that it is tied into US policy, which gives it the international rather than local/parochial flavor.


Corruption, Money Laundering and NGOs


Much is spoken of corruption but little is heard about actually fighting corruption in Georgia. Nevertheless, anyone who knows anything about Georgia understands that corruption is a plague that must be eradicated for this country to make true progress.


Newspapers publish countless stories on the topic. However, corruption in international organizations is a special problem that has rarely been addressed, because the media here is afraid of embarrassing international assistance efforts to which such a debt of gratitude is owed.


Case studies Potemkin Associations – NGOs


“Case study” Take for example a network of credit unions founded by ACDI/VOCA, which is an US based private nonprofit international Development that has been working in Georgia since 1993 with USDA/ USAID funding. Loans are provided to commercial wheat producers and these are reflected in the Tbilisi headquarter books as being for one year. However, actual loans are made for 10 months, which matures in the middle of the wheat-harvesting season when prices are substantially lower. If a farmer does not want to be late in payments, which will disqualify them for future loans, then they must sell the wheat for less than if they would have waited if they for two to three months more. The credit union profits when farmers sell beyond the 10-month period by imposing fines on peasant farmers, adding a little extra margin to the bottom line. Some farmer would like to mill the wheat into flour and make an extra margin from the value-added processing.


What is interesting is that it appears that staff members, elected representatives of the members themselves, i.e., the “supervisory board” of the credit association are in fact middlemen, wheat brokers. This information is supported by discussions with several farmers in East Georgia, and having access to copies of one contract that was signed in Georgian and English languages, which clearly demonstrates the level of thought and organization that has gone into this instance of corruption. If farmer complains about being forced into a marketing corner, or is late in payment, beyond the 10-month maturity date, then that farmer is refused future loans and this makes it almost impossible to plant a new crop. A local credit manager, assistant credit manager and bookkeeper carry out day to day management and the process is supported by other support personnel in Tbilisi who oversee the local credit unions.




However, there is much more below the surface than meets the eye, based on discussions with some key persons in the Georgian Ministry of Agriculture. One of the main problems is that staff, especially in the beginning. The problem is that ACDI/VOCA gives lots of control to their credit union Field Managers. These Field Managers are not hired based on their knowledge of credit and loan analysis but rather because of their “ties within the local community.” In other words, these people are often chiefs of the local tax inspectorate, former local administration executives, or other influential local politicians. They are hired to be able to force the farmers to pay.


Case Study of Corruption in International Development: UMCOR and UNDP Festival of Corruption: UMCOR’s (United Methodist Committee on Relief) Implementation of The 1996-1998 UNDP Income Generation Project


UMCOR received in the neighborhood of $160,000-$200,000 (this is what source remembers) from the UNDP to make a combination of grant plus no-interest loans to four separate organizations. Each organization received $40,000-$50,000, of which $20-25 K had to be repaid; the rest was just kept as a grant by the organization. So obviously, whoever was included in the program got a major sweetheart deal.


The source is unaware what procedures were made the select the four winners, but by all accounts the process was completely dirty. Let us look at who the winners were:


1) The medical services/international development firm Curatio. Curatio was created by UMCOR employees, its Board at the time consisted almost entirely of UMCOR employees, it was rumored to be owned by Georgian UMCOR employees using UMCOR grants. When UMCOR Deputy Director Sandro Kvitashvili left UMCOR he immediately became 2-3rd ranking chief of Curatio. Curatio got all kinds of contracts from UMCOR—for example it supplied the UMCOR health insurance until Khatuna Zaldastanishvili, Deputy Country Director, came in and removed them and substituted her own outfit as the health insurance provider. Curatio stopped being important after Khatuna became chief—a new Mafia had assumed power in UMCOR. Obviously, a fair tender process could not have considered Curatio given its ties to UMCOR—but nevertheless it won.

2) The second firm to win was a manufacturer of cement blocks. The name is unknown, but the owner had very close ties (as witnessed by source) to Georgia UMCOR managers, and also probably family ties to them.




At this point it should be noted that repayments of the loan part was overall very poor, but that the two firms above were much better in this regard than the next two.


3) A glassmaker. Source knows very little about this recipient, except that he did not pay back the loan portion.


4) The best of all the recipients was a certain project called “Underground.” The loan/grant was meant to set up some small stores in an underground passage under a street or leading into a Metro. The “recipients” simply took the money and ran. They did not do absolutely anything. No repairs, no visible sign of any work—nothing ever got started. The feeling amidst UMCOR was that UMCOR managers had split the money with some friends and manufactured a completely fictitious project. As easy money as one can possibly make!! Not a single cent was ever returned.


Everybody considered the project an unmitigated disaster, and UNDP roasted UMCOR expatriates about this at certain heated meetings…but of course this was after the fact. Where was UNDP when the crimes were being committed?


A thoroughly amusing Postscript on the project: The Project Manager was somebody called Mamuka (last name cannot be remembered). One would have thought that after the disaster he presided over he would never be able to find a job with international organizations in his life. Instead, he left the project prior to its conclusion and became head of contracts for the World Bank in Tbilisi, lecturing other people and organizations about how to conduct honest fair and transparent contracting process. The only effect of the project was to teach all Georgians involved that corruption truly does pay and that one can take the money from international donors get away with it, and laugh at them too. The corrupt will still get hired again by their buddies.”


USAID and Job Searching “But she didn’t get the job” UMCOR Fires Deputy Director for Corrupt Activities – Nevertheless USAID Close to Hiring Corruption’s “Iron Lady”


Sources inside the international NGO UMCOR confirm that its Georgia office in early June 2002 fired its Georgian Deputy Director Khatuna Zaldastanishvili on suspicion of graft and corrupt activities. Zaldastanishvili attained notoriety two years ago when an expose in the Georgian Profile magazine identified her as the driving force behind a number of dirty schemes carried out by the organization’s Georgian employees.



Officially, UMCOR’s contends her departure is due to the abolishment of her position as Deputy Director. However, this is clearly a fiction, since in that case she should have been assigned elsewhere instead of forced to leave. In reality, her dismissal involved an outrageous episode that a new UMCOR Director, less disposed than his predecessors to accept her “transgressions,” felt could not go unpunished.


According to these sources inside UMCOR, the firing followed an investigation of Zaldastanishvili’s connections to a local ketchup producing company for which she had proposed a huge grant (in USDA funds) of close to $500,000. According to the sources, suspicion began to grow when she pushed too hard to have this project approved, in the face of widespread skepticism of such a large sum being granted to a single, unknown company. In the end, the new UMCOR director launched an investigation that showed Zaldastanishvili to have close unofficial ties to this company, and that the directors of this firm had promised her payment of $200,000 if she could obtain the grant for them.


Zaldastanishvili’s dismissal comes at a time when her power inside UMCOR was greater than ever. She had recently achieved a long-standing ambition of fitting a local crony of hers in the position of Director of Agriculture programs, formerly reserved for expatriates. “She felt she could do anything, now that she controlled the highly lucrative USDA funded agriculture program” claims one source, “greed led to her downfall.”


One could think good riddance, but there is a twist to this story. It now appears that the USAID Mission in Georgia was set to hire Zaldastanishvili as a Foreign Service National. “The papers are already drawn up,” says a USAID Manager on condition of anonymity. Did USAID strike a deal with UMCOR to help ease Zaldastanishvili out, making it comfortable enough for her not to “spill the beans” on UMCOR?


NGO “Recently investigated in Georgia by USAID Office of Inspector General, three weeks ago. CARE International – sometime back in 2003.


Dear Mr. Silverman,


You have a very good reputation in uncovering corruption humanitarian organizations. I suggest you do some investigative work of CARE. The former Country Director, Tamara Tiffany, was quietly removed from her position about 6 months ago to avoid publicity.



While the Country Director, Ms. Tiffany used the CARE office and her position as a front for her own personal business.


Horizon Ltd.” The company has at least two individual businesses, a restaurant and a construction business. These two businesses are listed on the American Chamber of Commerce database of US companies operating in Georgia. Her husband supposedly owned horizon. In fact, she is the president of the company. This is clearly shown on the AmCham list.


While at CARE, she spent about half her time working on Horizon Ltd matters while being paid by US-based donors. She used CARE equipment to conduct her personal business. For example, each morning at work the fax machine was inundated with messages sent to her related to Horizon Ltd, not to the work of CARE. She had employees of CARE use work time to deal with matters solely related to Horizon Ltd. Finally, while she was working at CARE, the e-mail address for Horizon Ltd was: (Again refer to the AmCham list).


She used CARE’s import tax exemption to bring many assets into Georgia, including vehicles, which are used and owned solely by Horizon Ltd. In fact, the Horizon vehicle received yellow humanitarian license plates even though it is used only for her personal business. It is not clear what other materials and assets wee brought into the country under the CARE cover.


Ms. Tiffany should be investigated to see if CARE ever contracted with her construction company to do any other shelter work, of which CARE has done hundreds over the years. This would be a gross conflict of interests.


Not only was Ms. Tiffany quietly removed as part of a massive cover-up to protect CARE. It seems that USAID acquiesced in the removal in order to protect itself. And for all of this, Ms. Tiffany has been rewarded—she has been named as a member of the board of the American Chamber of Commerce in Tbilsi. US base NGOs like to talk about the problems of corruption in Georgia. What took place at CARE shows the level of hypocrisy that is commonplace.


Please do what you can to expose this so that one-day international NGOs will be able to redeem their integrity. I suggest that you begin by getting a copy of the AmCham database of US owned companies operating in Georgia and see for yourself—and then work backwards. There is a huge cover-up to be exposed.




Banking Scandals (US and European Funding)


Organized crime in Georgia is one of the most prevalent problems facing banking regulators and the international community. 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 International Development (USAID) and the US Embassy reacted to a clear-cut instance of banking fraud may be more reflective of political expediency than actual greed and corruption.


Shore Bank (USAID and IFC funding, IFC is part of the World Bank Group).


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 of some of the money. 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 bank.


It will take the joint effort of several regulatory and international organizations working together to face the fallout of corruption in Georgia. Unfortunately, it appears at first impression that the international community and Western missions have been willing to turn a blind eye to the interface between such instances of corruption and networks of patronage, mainly because of not wanting to upset the fragile balance of outside interests and geopolitical rivalries that can easily spin out of control. The 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.


Facts (based on source inside USAID well acquainted with Shorebank issue, not for publication inside Georgia. Local hire, Nino Stepanishvili joined the bank in early 1999. She had previously worked for a major foreign pipeline construction firm in Tbilisi. It was believed she might have also stolen from them too. The theft from Shorebank is believed to have begun in early 2000. Shorebank in June 2002 eventually did initiate a criminal complaint against Stepanishvili (probably due to the Silverman investigation). There has been no further fallout—nobody has been arrested, and Georgian police are investigating but this has stopped now that USAID pulled life support for Shorebank. Shorebank fired two other local employees in July 2001, shortly after the discovery of the theft, on suspicion of collaboration with Stepanishvili.

Corrupt tax inspectors are believed to have played a key role in the conspiracy with Stepanishvili. “Tens of thousands” of dollars stolen represented tax payments, which Stepanishvili reported as paid, but in actuality were not, actually paid. Inspectors should have, but did not, report Shorebank’s non-payment for over a year, and were likely conspirators.

The tax inspectorate immediately launched an investigation once Stepanishvili was dismissed. USAID’s decision to have Shorebank pay up and shut up was due to embarrassment likely involvement of tax inspectors in this theft would have on the USAID project with the tax inspectors. Eventually tax inspectors forced Shorebank to pay a heavy fine due to “late payment” of taxes.

German Banker Life Threatened, “This story was broken by me in the Georgian Times Monday, December 2, 2002 (my name was not mentioned) but there is much below the surface. I still have all the correspondence between  Alexander von Gleich, banker and myself. I am saving that for the book. 

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