A Ukrainian leader on the run, his mansion, and a 15-year-old corruption case.
- By Jamila TrindleJamila Trindle is a senior reporter who covers finance, economics and business where they intersect with national security and foreign policy. Her beat spans everything from the economic underpinnings of conflict to sanctions, corruption and terror finance. Before coming to Foreign Policy magazine, Jamila reported for the Wall Street Journal’s Washington bureau, covering financial regulation and economics. She has also worked as a foreign correspondent in China, Indonesia and Turkey as a freelancer for NPR, Marketplace, The Guardian and others. She moved back to the U.S. to cover the post-crisis economy for PBS in 2009.
A self-exiled Ukrainian leader’s extravagant private mansion inspires awe and disgust. The indulgent details — giant bathtubs and gold-plated doorknobs — are taken as evidence of official graft, even before investigators finish their work. Prosecutors open a case and the Ukrainian government embarks on a desperate struggle to claw back whatever money it can to fill the hole in the state budget left by official corruption and mismanagement.
It could be the story of the opulent mansion discovered in February outside of Kiev after former President Viktor Yanukovych fled the country, leaving behind his peacocks and his giant fake pirate ship. But it’s the story of another mansion and another politician, former Prime Minister Pavlo Lazarenko, who was forced to leave Ukraine in 1999. He was running toward his luxurious retreat, in the hills of Northern California, rather than away from it. But like Yanukovych, his mansion would ultimately be taken from him by authorities who believe he misused his office for personal gain.
Today, 15 years later, U.S. prosecutors are still working to return Lazarenko’s ill-gotten gains to Kiev. Ukrainian, Swiss, and U.S. officials pieced together the deposed leader’s business deals and tracked down an allegedly illicit fortune of $250 million in Guernsey, Antigua, Switzerland, Lithuania, and Liechtenstein.
Lazarenko was tried, convicted, and served time in a U.S. federal prison for corruption. He was released in 2012, but his money is still tied up in a U.S. court. Companies and individuals claim they are entitled to Lazarenko’s money because they were victims of his extortion scheme. Lazarenko himself still says the money was obtained through legal business.
It’s money that is sorely needed in Kiev, as the country tries to reform and right its finances amid an ongoing battle with Russia over whether Ukraine’s political future lies with Moscow or the rest of Europe. On Sept. 16, the Ukrainian parliament made a long-sought step toward the West by passing an agreement that strengthens political and economic ties between Kiev and the EU bloc. But at the same time, Ukrainian lawmakers also passed laws giving greater autonomy to eastern territories held by pro-Russian rebels, further solidifying a cease-fire agreement that freezes gains made by separatists who want still greater political freedom from Kiev. In a notable concession to Moscow, the trade portion of the agreement was delayed until 2016.
Lazarenko came to power in an earlier Ukraine, which was going through a different political upheaval, after the dissolution of the Soviet Union. The United States and other allies, as they have in recent months, sent financial aid to help the country through the transition. But Ukraine’s chance at reform was squandered then by corrupt politicians more interested in lining their pockets than pushing the country toward a more transparent government. The long fight to find and wrench back Lazarenko’s money illustrates how much harder it is to return the money than to take it in the first place.
When he purchased his California dream home, Lazarenko may or may not have known that he was already under investigation by Swiss and Ukrainian officials on allegations of corruption.
In September 1998, Lazarenko used a shell company to purchase the 17-acre estate outside of San Francisco for $6.75 million. The 18,000-square-foot mansion is the largest in Marin County, according to local real estate agents. The giant building is surrounded by lavishly landscaped gardens and pools nestled amongst the trees atop a hill, located between San Pablo Bay and the Pacific Ocean.
The manor is thousands of miles from Kiev, but the over-the-top details are reminiscent of Yanukovych’s Mezhyhirya palace: a 200-foot ballroom with vaulted ceilings, a giant chandelier, a palatial staircase, not one but two helicopter landing pads, tennis courts, and, of course, a main residence replete with 11 bathrooms. Lazarenko’s mansion also has its only-in-California cachet: Eddie Murphy reportedly lived there while he was filming a movie. In 2012, a hundred teenagers allegedly broke in, threw a party, and swiped a $30,000 Picasso lithograph, silver candlesticks worth $5,000, leather jackets, and laptops.
Lazarenko was detained only a few months after he closed on the house. In December 1998, as he tried to drive into Switzerland from France with a Panamanian passport, he was arrested on money laundering charges and then released on bail. Back in Ukraine, he had a falling-out with the president and fled to the United States in February 1999 to seek asylum. Instead, he was detained in New York at JFK airport.
The decision to flee to the United States — to his mansion in Marin — instead of Russia, as Yanukovych did, may have been his big mistake. Yanukovych, and likely much of his money, is now safely in Russia and beyond the reach of Ukrainian and Western investigators.
In 2000, U.S. prosecutors charged Lazarenko with using his office, first as governor and then as prime minister, to extort Ukrainian companies for up to half of their profits, as a condition for doing business in his country.
Peter Kiritchenko, a Ukrainian businessman and later advisor to Lazarenko, testified in 2004 that he paid the former politician $30 million. Then he helped launder the money through Antigua, Switzerland, and Poland. Over time, Kiritchenko become an integral part of the operation, according to the complaint, eventually receiving bribes from other companies and laundering them through Lazarenko’s complicated web of accounts. Lazarenko then got the money to the United States, where he funneled it through Dugsbery Incorporated, a shell company, to buy the California property, according to the FBI.
The complaint alleged that Lazarenko transferred $70 million to an account at Antigua-based European Federal Credit Bank, or Eurofed. Prosecutors say that Lazarenko had bought a majority stake in the bank in 1997, so he could use it to launder money, eventually transferring $114 million to accounts in the United States, including in San Francisco.
The complaint also alleges that Lazarenko received money from Ukrainian businesswoman-turned-politician Yulia Tymoshenko in exchange for favorable government treatment of her companies. Tymoshenko, who went into politics after Lazarenko left, was jailed by former President Yanukovych. She was sentenced to seven years in prison, but was freed in February as he fled the country. She lost the presidential election to Petro Poroshenko this spring.
A jury convicted Lazarenko later in 2004 on 29 counts of money laundering, wire fraud, and transferring stolen property. He was fined $9 million, ordered to pay back nearly $23 million of what he had taken, and sentenced to nine years in prison. In 2004, advocacy group Transparency International ranked him eighth out of 10 infamously corrupt political leaders, based on the dollar amounts they had taken. In 2009, his sentence was reduced to eight years on appeal and all but eight counts against him were dropped. He was released from federal prison in November 2012 and turned over to immigration authorities.
Now, 15 years later, the battle over who should get the roughly $250 million frozen in accounts connected to Lazarenko continues in a separate case in a Washington, D.C., district court. The U.S. government is fighting off other creditors in order to lay claim to the money, after which it could choose to return it to Kiev. Kiritchenko went after some of it, arguing that he was forced to pay a bribe, but his claim was dismissed since he conspired with Lazarenko to hide the money. Russian energy giant Gazprom also said it was owed $140 million in funds embezzled by Lazarenko, but that claim was dismissed too.
More than $100 million is still tied up at Eurofed, the Antiguan bank. It’s now in bankruptcy, and bank representatives argue that the funds should go to other claimants and shareholders in the bank’s liquidation. Lazarenko is also still vying for the funds. His lawyers argued on Sept. 5 that the court should hold another hearing to review the evidence in the case, which promises that the litigation will drag on.
Dan Horowitz, one of Lazarenko’s attorneys, said that the government went too far by freezing all of Lazarenko’s money.
"He was a great businessman too," Horowitz said by phone from California. "He ran lots of businesses that no one has ever complained about."
Before he was released, Lazarenko said he wanted to return to Ukraine.
"I have in every way that I could have punished myself, I have punished myself," Lazarenko told the judge hearing his appeal in 2009, according to the Associated Press. "After my release, I will go to Ukraine and work hard and honestly in order to clear my name."
Horowitz said, however, that Lazarenko hasn’t returned to Ukraine out of fear of his political rivals. He remains in the United States, though Horowitz wouldn’t say where or comment on his immigration status. Lazarenko never lived in the big house on the hill in Marin, Horowitz said.
The mansion was seized by authorities last November as part of the restitution Lazarenko owes in the criminal case. The U.S. government sold the house for $5 million last month. While buyers from Russia and Asia were interested, the palatial getaway went to a local buyer. He bought the house through a company, Sunrise Ridge Ventures LLC, in order to remain anonymous, according to RE/MAX agent Vega Pao, who helped him buy the house.