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OL’ MAN RIVER AND THE DAM STATE: Why the High Grand Falls Dam project is a bad idea

In this second part of a three-part series, PAUL GOLDSMITH explains why, instead of being a solution to the problem of food insecurity, big dam projects and large-scale irrigation schemes in Kenya end up causing more problems than they solve due to a combination of mismanagement, corruption and a top-down approach that fails to take into consideration the environment and the livelihoods of local populations.

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OL’ MAN RIVER AND THE DAM STATE: Kenya’s misguided Big Water policy
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The various feasibility studies and state policy documents supporting the revival of the High Grand Falls Dam project on the Tana River conform to what economists refer to as path dependency – or how a set of decisions for any given circumstance is limited by the decisions made in the past, even though past circumstances may no longer be relevant.

The QWERTY keyboard is the classic example of this pathway effect. It was designed to prevent typewriter keys from striking each other and sticking. A clever solution at the time, the un-ergonomic keyboard survives as the default for our computers and phone keypads decades after the demise of the typewriter because changing it would create greater problems.

Conceptually, path dependence interfaces with other properties of systems such as convergence, probabilities, and the jargonistic but useful property termed ergodicity. Economists define ergodicity as the ability to eventually shake free from the influence of a past state. Non-ergodic practices, in contrast, risk the problem of becoming locked in, as demonstrated by the rapid fall of Nokia when it dismissed touchscreens as a “gimmick” and lost out on the growing smartphone market.

The path dependency Illuminated by this particular case highlights a wide set of institutional practices and incentives that contribute to many of Kenya’s latest large infrastructure projects. The empirical evidence demonstrating that large infrastructure projects do not benefit the poor is not a concern in President Uhuru Kenyatta’s Big 4 policy environment. Rather, it’s a case of “the bigger the better” when it comes to Kenya’s administrative gatekeepers, tenderpreneurs, and decision makers. Endemic corruption and the ballooning national debt are consequences of this non-ergodic mindset.

Feasibility studies and invisible stakeholders

The upper Tana became the main provider of Kenya’s electricity after independence, a role that began with the construction of Sagana in 1956 and expanded by the commissioning of the Kindaruma (1968), Kamburu (1974), Masinga (1981), Kiambere (1988), and completion of the original Gitaru (1999) dams. None of these projects generated significant controversy at the time. Adding another electricity-generating station to the chain would appear to be a straightforward proposition, but it is not.

The 2016 Environmental and Social Impact Assessment of the High Grand Falls Dam project commissioned by the National Environment Management Authority (NEMA) confirms that the majority of people that will be negatively affected by the project live in areas historically neglected by the government. The report’s two-page summary of the project area’s socio-economic characteristics observes that the corresponding “low level engagement has left the communities to develop at their own pace. Some of the communities in the region are very conservative and continue with retrogressive practices that are inimical to development”.

The upper Tana became the main provider of Kenya’s electricity after independence, a role that began with the construction of Sagana in 1956 and expanded by the commissioning of the Kindaruma (1968), Kamburu (1974), Masinga (1981), Kiambere (1988), and completion of the original Gitaru (1999) dams. None of these projects generated significant controversy at the time. Adding another electricity-generating station to the chain would appear to be a straightforward proposition, but it is not.

The assessment document is rich in technical details but bypasses critical socio-economic and cultural issues. For the inhabitants of Kenya’s remote margins, it is the latest example of the dirigisme underpinning Kenya’s post-independence tradition of social exclusion.

Whether by design or omission, the negation of local histories and indigenous knowledge traditions effectively functions to render excluded minority communities invisible when it comes to development planning. Once an area is targeted for an external investment or development project, the commissioning of the feasibility study reinforces the established trajectory without exploring the negative social implications of the environmental impacts and other related factors.

The various feasibility studies commissioned in support of the Magogoni port and the Lamu Port South Sudan-Ethiopia Transport (LAPSSET) corridor, the Roola Project Memorandum of Understanding with Kuwait that preceded it, and the study supporting the allocation of the Tana Delta land for sugar production all conformed to this model. The original Mutonga-Grand Falls feasibility study, to its credit, documented the negative environmental impacts downstream, but otherwise skirted the social and economic consequences for the local stakeholders.

OL’ MAN RIVER AND THE DAM STATE: Kenya’s misguided Big Water policy

Read also: OL’ MAN RIVER AND THE DAM STATE: Kenya’s misguided Big Water policy

There is much to be said for sticking to what works, but the opposite principle applies in the case of the government’s Expanded National Irrigation Programme (ENIP) goal of expanding the 165,833 hectares under irrigation in 2011 to 1.2 million hectares by the year 2030. Most of the land to be developed in order to meet this 600 per cent increase is located in the country’s Arid and Semi Arid Lands (ASAL) zones. The performance of Kenya’s large irrigation projects has not been impressive and several of them are very expensive white elephants.

The ENIP contribution to the proposed strategy is based on an in-depth study of the water resources available in the Tana and Athi river basins. A Food and Agricultural Organisation (FAO) overview of the strategy outlines the formidable technical challenges involved, such as the high level of water losses due to evapotranspiration in the reservoirs and in the channels proposed to convey water to other sites. Kenya currently uses over 69 per cent of its limited developed water resources on irrigation. The share of Kenya’s water diverted to irrigation will rise to 89 per cent with implementation of the ENIP-driven food security strategy, which does not factor in growing industrial and urban demand.

The High Grand Falls Dam project is the main engine of this plan that, among other things, aims to redirect water to the Galana River to ensure sufficient water for the dysfunctional Galana-Kulalu scheme that is scheduled to eventually cover a colossal 1.7 million acres. The NEMA assessment document also mentions the construction of another channel transferring water to the Waso Nyiro, but does not explain why.

The water problem is emblematic of the formidable challenges facing society across system scales. The high stakes posed by the global population-natural resource equation explain why the private sector and governments alike are extolling the virtues of innovation, disruption, and creative problem solving. The dam is, in contrast, a Red Ocean project predicated on the giganticism embraced by the Vision 2030 and LAPSSET agendas.

The larger problem with the High Grand Falls Dam Assessment Study is what is not reported, like the cutting-off of the Tana for 32 months and the consequences for the ecology and downstream communities. The study does refer to the increased incidence of human-crocodile conflict (their words, not mine) and includes a list of preventative measures that can be taken to reduce it, but otherwise lacks mention of any planned mitigations downstream, or the prospects for the intensifying resource conflicts that John Allen Namu documented in The End of the River series screened on NTV.

The study does, however, pay lip service to the impact on the residents of Tharaka, who were the only grassroots stakeholders consulted. The study team convened five meetings in Tharaka attended by 857 local participants. According to the document, “there is a general acceptance of the project by the majority of the communities living in the area”.

The larger problem with the High Grand Falls Dam Assessment Study is what is not reported, like the cutting-off of the Tana for 32 months and the consequences for the ecology and downstream communities. The study…lacks mention of any planned mitigations downstream, or the prospects for the intensifying resource conflicts…

One can question the extent of the information communicated in these briefings; summaries of the discussion include miscellaneous details, like an announcement that title deeds are ready for Kamanyaki, an area that will be under water if the project goes forward. There is also no reference in the document to consultation with other communities; it renders the stakeholders in Garissa, Tana River, and Lamu counties invisible. My contacts downstream, including a local MP, verify the lack of consultation and report a general perception of confusion over the dam project.

Spatially, Tharaka is one of the most remote areas of Kenya. Its remoteness is not a function of distance, but of the area’s isolation. The roads are challenging and it is not on the way to anywhere else. So the only reason you will find yourself in towns like Marimanti, Chiakariga, or Gatunga is because you have an important reason for visiting. As the Assessment Study observes, the locals have been developing at their own pace; what it does not say is that the residents of Tharaka seem to be okay with this, and are keen on finding their own solutions, like the modified female rites of passage based on piercing the ears of young girls in place of the “retrogressive” tradition of female circumcision.

Once upon a time I conducted a survey on the state of education, health, and access to water that took me to every sub-location of Tharaka. The residents at that time were highly independent and probably the most land-paranoid community in the country. The area can prosper with greater exploitation of the local rivers for irrigation, but this has been slow coming due to internal social factors linked to the use of communal resources. The High Grand Falls Dam blueprint, in contrast, requires the relocation of 4,500-plus displaced households to a large-scale irrigation scheme outside their home county.

I find it very difficult to see the residents assenting to the planned mitigations, especially without monetary compensation, which according to recent reports in the press has been scrapped due to inflated claims and other problems common to projects that require resettlement and compensation.

Maybe the lack of attention to these issues does not matter. In a study entitled Watered Down? A review of social and environmental safeguards for large dam projects, the authors of one of the studies report that “the implementation of systematic procedures to reveal social priorities is still very unusual in developing countries” and that “it has been estimated that environmental and social safeguard processes derived from public consultations have been implemented in only 10–15% of new hydropower projects around the world”.

A case of too much electricity?

This brings us to the objectives justifying the displacement of Tharaka households and the other social and ecological negatives that will be caused by the 32-month hiatus in the river’s flow. The benefits covered in the Assessment Study are the generation of 700 megawatts of electricity, the creation of a large 5.6 billion cubic metre reservoir that the project’s designers claim will be used to irrigate 200,000 hectares of cropland, and enhanced management of the river’s flow to control flooding. These plans represent the culmination of the pathway beginning with the development of the Tana’s hydroelectricity capacity that projected 11 dams in total. But things have changed since the project was first proposed in the mid-1990s.

Kenya’s national electricity strategy seeks to diversify the nation’s power sources. But hydroelectric generation already provides the greater portion of Kenya’s electricity, and is subject to increased uncertainty over the long run due to factors of climate change and degradation of the country’s water catchment areas.

Moreover, like the controversial coal-generated electricity plant proposed in Lamu, this latest energy investment comes at a time when the region’s electricity supply is outstripping demand. Several new power sources, such as the Lake Turkana Wind Farm, the three Gibe dams on the lower Omo River, and the Bujagali, Isimba, and Karuma dams in Uganda, will add to the region’s growing electricity surplus.

Kenya is blessed with an abundant but largely untapped capacity for wind and solar power, and costs have come down. The wind and solar projects now being planned or under construction at this early point in the sector’s development will add another 1,000 megawatts to the grid. In addition, Kenya is contracted to buy 400 megawatts of power from Ethiopia, but the government appears to be delaying the connection, ostensibly due to the problems of marketing the existing supply, even though in 2015 a contract to build supply lines was signed with a Chinese contractor.

The numerous problems of mismanagement and consumer exploitation that are endemic in Kenya’s state-controlled electricity sector highlight the real priority, which is the need to extend connections to the large numbers of Kenyan households that do not have access. This is being addressed through a mix of off-grid, mini-grids, and connections to conventional sources.

A history of failed irrigation projects

No one contests the need to enhance Kenya’s national food security. However, the prioritisation of large-scale irrigation schemes in order to justify the High Grand Falls Dam is considerably more problematic than the power generation that was the original Mutonga-High Falls project’s primary driver.

The record of Kenya’s large irrigation schemes ranges from poor to disastrous, sprinkled with a few qualified successes. The Perkerra, Kanu plains, Mwea-Tebere, Hola, Bura, and Galana schemes have all experienced serious problems. Even the one success story, the Mwea scheme, was on the brink of collapse by the early 1990s when it was managed by the National Irrigation Board. Militant protests by the scheme’s residents who fought and defeated the police trying to block a demonstration led to the liberalisation of the Board’s marketing monopsony. This was followed by the still ongoing and controversial privatisation of the scheme’s land holdings.

The record for sustained mismanagement belongs to the ill-fated Bura irrigation scheme. The world’s most expensive irrigation project at the time it was christened in 1977, it quickly turned into a black hole for the World Bank, the Government of Kenya, and the pastoralists-turned-farmers who settled there. Writing in 2008, three decades after its inception, one researcher described the conditions on the scheme as:

The area is now reminiscent of a ghost town. Huge water towers stand abandoned in the scrubby landscape; irrigation canals stretch across tens of miles, overgrown with thorny vegetation; and a fenced-in vehicle parking lot contains dozens of rusting Land Rovers and large farm machinery. Housing units built for mid-level project staff as well as the villas for the resident managers stand abandoned, dilapidated, and looted. Only people with nowhere left to go remain on the project site.

The former pastoralists who settled on the Bura scheme have survived as subsistence farmers assisted by famine relief provided by the World Food Programme. They draw their water from a murky irrigation pond they share with livestock. The award for the ultimate cosmic insult, however, goes to the nearby Hola Irrigation Scheme. During the mid-1990s the Tana changed course, leaving expensive industrial pumps beached next to the old riverbed.

The record of Kenya’s large irrigation schemes ranges from poor to disastrous, sprinkled with a few qualified successes. The Perkerra, Kanu plains, Mwea-Tebere, Hola, Bura, and Galana schemes have all experienced serious problems. Even the one success story, the Mwea scheme, was on the brink of collapse by the early 1990s.

Indigenous production systems developed important social risk-spreading strategies and cultural resilience for coping with climatic uncertainty and periodic but unpredictable extreme environmental events – an orientation that most developmental interventions lack. The Japan-supported Tana Delta Rice Production scheme, for example, started well but went belly up after the 1998 El Nino rains destroyed the main canals. Power surges disabled the large German-built milling complex. Rice production continued on a reduced scale and the problems could have been fixed, but the government withdrew its funding in 2001 due to massive corruption.

The last time I visited the scheme, monkeys were roaming the impressive but incapacitated processing plant while an old smoke-belching mill next to it laboured to turn the small harvest of mpunga into mchele. A number of local and international agribusiness organisations stepped into the gap by lobbying the government in order to establish sugar and jatropha plantations. A large area was allocated to a British firm to implement a biofuel scheme, but like the plans for sugar, it failed to take off due to widespread local opposition.

As one report declared, “The Tana Delta could house a museum featuring failed projects”. The report traced the poor record of top-down projects in the Tana Delta to the failure to take the local people and the environment into account. Research undertaken by Nature Kenya established that the value generated by local agricultural and livestock producers considerably exceeds projected returns to sugar monoculture and the other capital-intensive ventures.

Environmental impact on the Tana Delta

In 2012 the Tana Delta became a Ramsar site, which recognised its status as one of the world’s important wetlands. A case study by the International Union for Conservation of Nature (IUCN) reports that the dam’s impact on the Delta will result in the reduction in the area and composition of floodplain grasslands, lowered surface and groundwater sources, loss of fertile riverbank sediment depositions, reduction in swamps, ox-bow lakes and seasonal water bodies, the deterioration of riverine forest areas due to senescence, and the degradation of the mangroves that include two species unique to the Tana Delta environment. The ecosystem hosts many other rare and endangered species, but the main casualty may be the over one million people who depend on the river’s flooding regime for their livelihoods and the 2.5 million head of livestock who depend on the water and pasture. The project will also jeopardise the growing number of riverside farms in Garissa that use the river for irrigation, who will lose out when the project redirects Tana River water to the Athi-Galana in order to support the government’s latest water grabbing experiment – the US$3 billion Galana-Kulalu project.

A case study by the International Union for Conservation of Nature (IUCN) reports that the dam’s impact on the Delta will result in the reduction in the area and composition of floodplain grasslands, lowered surface and groundwater sources, loss of fertile riverbank sediment depositions, reduction in swamps, ox-bow lakes and seasonal water bodies, the deterioration of riverine forest areas due to senescence, and the degradation of the mangroves that include two species unique to the Tana Delta environment.

The Tana Delta and riverine zones are crucial dry season reserves that attract other herders from as far as Wajir and southern Somalia during drought years. Over 100,000 Pokomo depend on recession agriculture, and there are 50,000 freshwater fishermen working in the Delta. However, none of these facts have stopped the authors of the High Grand Falls Dam Assessment Study from claiming that the project is necessary for securing the productivity of land in the Tana Delta.

The record of flawed interventions on the coast, including the nearby Magarini settlement scheme, did not augur well for the government’s one-million-acre Galana-Kulalu irrigation scheme. Observers questioned the prospects for the proposed public-private partnership when it was launched in 2014. The scheme did not disappoint. Production has been dismal, funds have vanished, and in 2016 a group of parliamentarians called for the suspension of the scheme, citing mismanagement and inflated costs. In September of 2018, the press reported that the National Cereals and Produce Board received maize valued at Sh35 million from the scheme, a paltry return to an enterprise that four years after its launch has spent Sh7.3 billion to bring only 5,000 acres under cultivation.

Analysis of the technical, administrative, and tenure-related issues besetting Magarini and other schemes in Kwale and Lamu show that they have neither alleviated the coast’s land problems nor have they advanced Kenya’s agricultural development. The Galana-Kulalu scheme is the latest contribution to a policy pathway littered with numerous such developmental disasters. Massive amounts of funds have evaporated under the hot African sun; and in an area inhabited by minority communities, these disasters have been a recipe for political tensions, conflict, and corruption.

Irrigation launched Kenya’s lucrative horticultural export industry. Private farms are perhaps the best example of irrigation’s commercial potential, but most of the produce is exported. Irrigation will also have to make a growing contribution to food security over time and prospects for expanded medium- and small-scale irrigation based on water user associations are positive. But at this point, farmers using the common jua kali overhead sprinklers and appropriate technologies like the ApproTec treadle-pedal pump have probably made a greater contribution to domestic food security.

Irrigation presently consumes 69 per cent of Kenya’s water. An analysis of scale, control and success in Kenyan irrigation attributes the problems of schemes to bureaucratic control, and found that state mismanagement is a more important factor than scale. Expanding the unexploited potential for land under irrigation will depend upon sorting out a matrix of technological, social, and environmental issues influencing agricultural output and efficiency. The High Grand Falls project and documents supporting it do not provide answers.

The elephants in the room

There are two elephants in this room. The first is the nexus between climate change and the availability of water. A hydrological analysis of the impact of climate change on the Tana Basin indicates that levels of rainfall across the basin will increase, but so will the variation and episodes of extreme precipitation and drought. Its impact will also vary across the region’s ecological zones, increasing the problematic consequences for ASAL areas. Despite the overall increase in rainfall, the authors underscore that the real challenge will be the need for those managing water resources to adapt to the new climate regime with its extremes of drought and flooding. This is a serious game changer.

The other elephant is the state. The record of mismanagement, graft, and poorly designed interventions make it easy to critique the Kenya state’s record of bungling and impunity in this sector. But the fact remains, for the bureaucrats who harvest the extra allowances and other perks these projects generate, Big Water is a magic bullet that will resolve Kenya’s food security equation. For the political decision makers at the top of the food chain, it is a convenient source of patronage and rents.

Although the case for expanded water storage requires a sustained long-term strategy, it is hard to take projects like the High Grand Falls Dam seriously when a Permanent Secretary goes on record to justify the project by stating the dam will form ”a small lake, introducing fishing to the communities around it, and tourism”. He clearly did not read the reviews on TripAdvisor about the state of the Masinga dam resort. A fraction of the dam’s price tag would go a long way towards improving water security across Kenya’s water-stressed regions by creating many “small lakes” where rainfall collects.

There are many other alternatives to centralised water storage. According to the author of an Oxford University Business School study of large dam projects, “Many smaller, more flexible projects that can be built and go online quicker, and are more easily adapted to social and environmental concerns, are preferable to high-risk dinosaur projects like conventional mega-dams.”

Big Water is just another variation on Big Infrastructure, but with much greater potential for blowback in this case due to the number of Kenyans facing lost livelihoods and displacement. The cash-strapped Jubilee government is clearly locked into a dead-end developmental pathway that is damming up its citizens’ problem-solving energies and capacity for developing social and technological solutions.

An analysis of pathway dependency offers two pieces of advice about escaping the “entrapment basin” like the one luring state policymakers and planners into the cul- de-sac reviewed here. The first is that those managing the system require external agency to change. The second is that instead of making choices that often turn out to be wrong, policy makers should improve the informational basis for choices that can be made by private parties and government agencies.

Big Water is just another variation on Big Infrastructure, but with much greater potential for blowback in this case due to the number of Kenyans facing lost livelihoods and displacement.

Unlike the case in the 1990s, there is now a large base of information and analysis on the issues interfacing with the High Grand Falls project, but the dam state will need a push if it is to play a role in rationalising the process.

In 1988, opposition to Hungary’s Nagyramos Dam provoked citizens to defy their Communist government for the first time, triggering the succession of events leading to the collapse of the Eastern Block governments in 1989. Maybe the High Grand Falls project will be the tipping point catalysing a coalition of local and external forces, like India’s Save Narmada Movement, that will lead to a more viable policy framework for managing the Tana Basin’s waters and the larger region they support.

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Mr. Goldsmith is an American researcher and writer who has lived in Kenya for over 40 years.

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Black Votes Don’t Matter: The Shrinking Civic Space of African Immigrants in the US

It is a difficult time to be an immigrant in the US. For those of African descent, theirs is a rare combination of challenges, not only in becoming part of a new nation but also in carrying the baggage that comes with being black in America.

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Black Votes Don’t Matter: The Shrinking Civic Space of African Immigrants in the US
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The United States of America has excelled in projecting an extraordinary image of itself as a free nation with a thriving democracy, where anyone can come and work their way towards a better life through civic participation. However, what the past few years in particular have peeled away betrays a somewhat different truth: that voting in the United States is hard and getting steadily more so. And there’s one group of people who face a particular set of difficulties when seeking to cast their ballot: African immigrants.

Some historic context is needed regarding voting issues within the US. First and foremost, there is a historic precedent of voter suppression in the US that is unequaled within the modern Western world. Much of the targeting of such efforts has directly affected African Americans and people of colour. After slavery was abolished, states would go to incredible lengths to suppress the black vote, including implementing taxes on voting, forcing black people to produce extraneous forms of personal and family identification and making would-be black voters pass vaguely worded and lengthy “literacy tests” in order to cast their ballot. These systems, a part of the infamous Jim Crow laws, were struck down as illegal in 1965 when the country passed the Voting Rights Act.

In the years that followed, those who sought to seek the vote sought out ways to circumvent the law and keep the voter turnout low. Since the latter half of the 20th century, high voter turnout translated to a more liberal result. Take, for example, that a Republican presidential candidate has won the popular vote once since 1988 (George W. Bush in 2004). In the cases of the victories of Donald J. Trump in 2016 and George W. Bush, they skated to victory through the electoral college; a system that traces its roots to suppress the popular vote.

When looking at US politics, it isn’t as much a matter of high voter turnout as it is who comprise the voters that are showing up to vote. The most telling demographic, the group with the highest disparity of aligning with Democrats over Republicans, is African Americans. Hillary Clinton carried the black vote by an 80 point margin – 88 per cent to 8 per cent over Trump in the 2016 election. This margin, coupled with the United States becoming more, not less, diverse has left those seeking to suppress the vote scrambling for answers.

In 2013, efforts to suppress voters gained a major boost when the US Supreme Court overturned section 4(b) of the Voting Rights Act, which outlined that states and districts that had previously been involved in voting discrimination needed pre-clearance of the validity of their electoral processes. The conservative judges ruled this as unconstitutional, that the section “punished” states for past mistakes, not for possible future successes. Justice Ruth Bader Ginsberg dissented strongly, stating that “throwing out preclearance when it has worked and is continuing to work to stop discriminatory changes is like throwing away your umbrella in a rainstorm because you are not getting wet.”

The Voting Rights Act had been brought before court in the wake of a series of issues across the US, primarily having to do with controversial voting ID laws, reports of voter suppression and other forms of disenfranchisement. In a theme that runs across America’s election process, the black community was disproportionately affected.

This brings the issue to focus on African immigrants in the United States. The issue of immigration in the United States has currently brought the federal government to a shutdown for over a month. There is constant rhetoric from the Trump administration targeting illegal immigrants as a major obstacle to the security and economic future of the United States. The issues of building a border wall with Mexico and continuing to provide guaranteed safeties (such as the Deferred Action for Childhood Arrivals programme, which offers protections to the children of illegal immigrants into the US) are being used as bargaining chips at the government level.

A difficult time

It is a difficult time to be an immigrant in the US. For those of African descent, theirs is a rare combination of challenges, not only in becoming part of a new nation, but also in carrying the baggage that comes with being black in America.

African immigrants in the US are a small but rapidly rising group. The increase has been marked since 1970, especially amongst sub-Saharan Africans. According to the Pew Research Center, the number of African-born individuals heading to the US increased nearly 250 per cent between 2000 and 2015, from 881,000 up to 2,060,000. Africans are also the fastest growing demographic among black immigrants, increasing by 137 per cent between 2000 and 2013.

It is a difficult time to be an immigrant in the US. For those of African descent, theirs is a rare combination of challenges, not only in becoming part of a new nation, but also in carrying the baggage that comes with being black in America.

In the US, a major aspect of any voting rights issue is where in the US you’re living. Different states hold different standards, different regulations and varying requirements. When examining how voting standards impacts African immigrants, there needs to be a brief examination of where African immigrants live.

The five states with the highest African immigrant population are California, New York, Texas, Maryland and Virginia. Cities such as Atlanta, Georgia and Minneapolis also have high numbers of such migrants. This is where context becomes even more important; California and New York are known as more immigrant-friendly destinations, and their major metropolitan areas are regarded as “sanctuary cities” for illegal immigrants. New York and Minnesota don’t require a photo ID whereas California may require one for a first-time voter (newly-naturalised US citizens are always first-time voters). Maryland holds a similar policy.

Texas, Virginia and Georgia, on the other hand, are a different matter entirely. Virginia requires a valid photo ID in order for an individual to vote in person. Texas and Georgia are both mired in controversy over the stringent regulations put in place regarding the standards for voter IDs. The state of Texas is currently mired in litigation over the voter ID laws, with opponents arguing that it disproportionately impacts minorities.

In Georgia, where over 70,000 African immigrants reside in the Atlanta metropolitan area, the man who was presiding as the Secretary of State (the office which controls the conducting of elections, a possible conflict of interest) won narrowly and controversially over Stacey Abrams, who would have been the first black woman elected to be a state governor in the US. Abrams repeatedly made claims that there was voter interference, particularly amongst black precincts, where electronic voting was in disarray and reports of voter suppression were rampant. These claims had much of their basis in and around Atlanta, Georgia.

Why does voter ID matter and how does it affect Africans living in America? For starters, the path to US citizenship (which is needed to vote in America) is extremely arduous, long and difficult. The paperwork hoops to jump through are staggering. On average, it takes an immigrant a minimum of five years of continuous residency to become a naturalised US citizen. In cases that need further legal counsel, it can take even longer as the legal side of American immigration courts have become steadily more choked and congested in the new millennium.

Why does voter ID matter and how does it affect Africans living in America? For starters, the path to US citizenship (which is needed to vote in America) is extremely arduous, long and difficult.

For immigrants, the issues surrounding voter ID can often be much murkier. For instance, immigrants can gain driver’s licenses within the United States, which is one of the key forms of identification needed in states with more stringent regulations. This doesn’t mean that immigrants have the appropriate information explained to them regarding the IDs being obtained. The African Advocacy Network of California notes that although driver’s licenses are applied for successfully by immigrants who aren’t naturalised, the fact that they are still unable to vote due to their status isn’t explained to them. This can lead to immigrants attempting to vote, unknowingly engaging in an illegal act of fraud. The penalties for such fraud in the US are harsh. Both illegal and legal immigrants can face deportation if found to be involved in fraudulent voting. Cases of actual voter fraud involving illegal immigrants are incredibly rare, but that doesn’t stop Trump from repeatedly claiming that Hillary Clinton won the popular vote because of millions of “illegals” somehow managing to cast ballots.

Illegal immigrants in Trump’s America

The Obama administration was noted for its strict approach to illegal immigration, deporting hundreds of thousands between 2009 and 2017. That same administration, however, did focus on expanding a programme called the H1-B visa, which encouraged workers from outside of the United States to enter the country to work. Many prominent corporations, including Amazon, Google and Microsoft, heavily leaned on the programme as it eased the transition for professionals to gain a foothold in the US workforce. In addition, the H1-B programme made the path to a Green Card visa (an initial step towards US citizenship) markedly smoother, encouraging immigrants to engage in the process of becoming a citizen.

The Trump administration, on the other hand, has taken a significantly different approach. The current White House passed an executive order titled “Buy American, Hire American” that directly encourages American companies to hire only the most skilled workers from outside of the United States. This will have a long-term impact on the number of H-1B applicants who can head down the path of gaining citizenship.

The Obama administration had an unfortunate track record of harshness regarding immigration, including reopening and examining case files of naturalised citizens (immigrants who gained their citizenship in the US). The Trump White House has, of course, seized on this idea and expanded it. Under this administration, the U.S. Citizenship and Immigration Service (U.S.C.I.S.) has created a new task force to look into cases and possibly “denaturalise” citizens for often muddied reasons, such as making a clerical mistake on a form. In essence, this leaves millions of naturalised United States citizens’ status at the discretion of officials appointed under the Trump administration, one noted for its blatantly anti-immigrant rhetoric.

A prominent path to Green Card visas for African immigrants is the Diversity Lottery programme, which grants visas to citizens from all over the world. Given the administration’s track record, it comes as little surprise that the White House has looked repeatedly into cutting the programme entirely. As egregious as this is, perhaps the repeated ransom holding of the so-called “dreamers” (children of illegal immigrants born in the United States and granted legal protections) is even more insidious. Trump has made a repeated talking point of ending protections for the dreamers, even going so far as to offer continued protection as a bargaining chip for $5.7 billion of funding for a border wall in January of this year.

The Obama administration had an unfortunate track record of harshness regarding immigration, including reopening and examining case files of naturalised citizens (immigrants who gained their citizenship in the US). The Trump White House has, of course, seized on this idea and expanded it.

So how does this apply to African immigrants, specifically? The numbers indicate that immigrants from sub-Saharan Africa are the fastest growing group, and that the vast majority of this immigration has occurred after 1960. This translates into African immigrants having less of an established civic network than other immigrant groups in the US.

Less civic engagement

Less network means less community engagement and less protection for Africans now calling the US their home. This, in turn, translates into issues surrounding social integration facing Africans in America. Those in questionable status are likely to eschew anything to do with getting on the record, including engaging in civic discourse. One example saw the city of San Francisco engaging with members of the African immigrant community to get involved with the local school board elections, despite many holding illegal immigrant status. Illegal immigrants worry about what will happen to their information and whether it will end up in the hands of Immigration and Customs Enforcement (ICE).

This is compounded by the constant shifting and swirling of regulations surrounding immigration within the US. Frankly put, in America, thing currently seem extremely uncertain. Those who would have gained the path to citizenship by being granted immigration visas are suddenly on the outside looking in. Immigrants from Libya, Sudan and Somalia (the three African nations affected under the Trump administration’s travel ban targeting Muslim-majority nations) are suddenly unsure of their status.

Noticeably, despite all of his talk of walls and increased military presence, Trump has not issued a travel ban to a Latin American country. The current administration is seemingly preoccupied with all things immigration, how to stop it, how to grandstand from it, how to flex political muscle by stopping it. In fact, in 2017, despite overall numbers of deportations falling, ICE deported a record number of African immigrants, more than double of the total from 2016. There were reported instances of poor treatment and abuse of deportees by ICE agents. While the numbers are comparatively small, increases in deportation can push African immigrant communities even farther outside of the democratic process. What was the number one country for African immigrant deportations from the US? Somalia.

Less network means less community engagement and less protection for Africans now calling the US their home. This, in turn, translates into issues surrounding social integration facing Africans in America. Those in questionable status are likely to eschew anything to do with getting on the record, including engaging in civic discourse.

Ilhan Omar, herself a Somali immigrant to the US, is now a first-term Congresswoman from Minneapolis, Minnesota. Her election is an indication of a potential future of US politics: that African immigrants can find a voice in politics, in part due to the rallying of their communities. She’s become an outspoken advocate for the Somali community in Minnesota while continually deriding the Trump administration’s anti-immigration policies.

Since her election, Omar has been a frequent target of scathing criticism from the conservative media and the Republican Party, who have even claimed that some of her pro-Palestine comments are blatantly anti-Semitic. While her election to the US Congress is historically significant (she’s the first African-born refugee in the history of the United States Congress), Omar is still just one member of Congress, one voice for an ever-growing population that seems ever-more targeted by executive orders of the Trump administration. Think of it this way: Omar wouldn’t be able to enter the US under the travel ban of Muslim majority countries passed down by Trump.

In essence, this message to newcomers to the US is: DON’T BOTHER GETTING ENGAGED BECAUSE THE CONSEQUENCES COULD OUTWEIGH YOUR EFFORTS. To those emigrating to the US from Africa, this messaging can appear even more insidious, as Adoubou Traore (who himself emigrated from the Ivory Coast), the director of the African Advocacy Network in San Francisco outlines: “Many Africans have inherent doubts about the legitimacy of elections, they’re a headache, their experience makes them not believe that their voices matter. When there is no guarantee that their information won’t be subject to being exploited, from their view: what’s the point?” There isn’t much that would prevent them from holding such views in America. It becomes a community question of why organise if doing so can only lead to more headache?

With issues surrounding racism against black people in America being dissected and moved further towards prominence in national dialogue, it would, at least on the surface, seem as though the communities of African Americans would provide a steady ally for Africans adjusting to life in America. Unfortunately, this is often not the case. There is a noted divide between Africans and black Americans, one that many coming to the US find difficult to bridge. Some of this gap is historically entrenched, some of it is due to the truly lacking breadth of coverage in the US education system regarding African history and culture. The awkward truth is: Africa as a topic in the US is regarded as a monolithic punch line to a bad joke, and is hardly rendered an after-thought in terms of democratic engagement.

In terms of vulnerability to less-than-democratic interests, there are myriad of groups in the United States that could use additional legal and outreach protections. Practically anywhere in America that can’t be categorised as white and suburban finds itself victim to voter suppression efforts. In the US context, the black community is systematically targeted the most.

Laws are seemingly rolled out in force yearly in dozens of states, implementing further restrictions and using scare tactics, lies and intimidation to influence local and national elections with a conservative slant.

The unavoidable truth is that Africans in the US find themselves at an ugly modern crossroads: the centuries of subversive efforts to reduce the so-called “urban” vote at a crossroads with the modern iteration of all-American xenophobic fervour. Though growing fast in population, the democratic influence has not kept stride.

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Death in Vienna: The Death of Erich Rebasso

In the last days of 2008, Erich Rebasso, an Austrian lawyer, sent a letter to the main Vienna headquarters of the Federal Criminal Police, the country’s top law enforcement agency. Its purpose was unusual — the father of four young children was blowing the whistle on himself.

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In the last days of 2008, Erich Rebasso, an Austrian lawyer, sent a letter to the main Vienna headquarters of the Federal Criminal Police, the country’s top law enforcement agency.

Its purpose was unusual — the father of four young children was blowing the whistle on himself.

“I deeply regret having been used for criminal purposes and I am willing to submit the matter to the required criminal review,” Rebasso’s five-page confession concluded.

But it had all come apart. Rebasso admitted he had been used to launder tens of millions of dollars. He explained that, for over a year, he had been accepting payments from Russian criminals and had sent the funds to other bank accounts at their instruction. Then 45, Rebasso specialized in advising Russian clients on how to do business in the West. He had an excellent reputation as a fast, reliable, and discreet partner, and he spoke Russian fluently.

As it turns out, those criminals were using companies that were part of the Troika Laundromat. The massive financial scheme revealed in OCCRP’s latest Laundromat investigation had been put together by Troika Dialog, then Russia’s largest private investment bank. Some of the accounts Rebasso wired to belonged to two of the system’s core offshore companies: Industrial Trade Corp. and Nixford Capital Corp.

Between December 2006 and February 2008, Rebasso used 150 individual transactions to send almost US$ 96 million to laundromat accounts at Ukio Bankas, a Lithuanian bank.

Many of the reasons specified for the transfers made little sense for a law firm. Along with trades involving “fruits and vegetables,” “consumer goods,” and “electronic goods,” Rebasso is even listed as buying “frozen herring” from companies with Ukio bank accounts. More likely, the description was a red herring aimed at Ukio’s compliance department.

Rebasso’s own Austrian bank accounts were held at Raiffeisenlandesbank Niederösterreich-Wien (RLB). Though the bank investigated his large transfers, it appeared to take no further action for two years — at which point it finally pressed him to stop.

The massive financial scheme revealed in OCCRP’s latest Laundromat investigation had been put together by Troika Dialog, then Russia’s largest private investment bank

Rebasso’s confessional letter had little effect. While police looked into the matter, it was two years later when they informed him that they had stopped the proceedings because they believed any potential crime had happened outside their jurisdiction and been committed by foreigners.

Two years after that, Rebasso was dead.

The Sheremetyevo Fraud

According to his statement, Rebasso’s involvement in the money laundering scheme began on a visit to Moscow in November 2006 where he was introduced to Viatcheslav Dremin, a Russian businessman. Dremin told him that he provided financial services to Russians who needed to transfer funds abroad. But the official system for sending money across borders was very bureaucratic, he said, and he needed to speed up the process. He wanted Rebasso to act as his trustee in Vienna to help him move the money faster.

The lawyer accepted. Soon, two Vienna bank accounts belonging to his Austrian company, Schulhof Investigation (later renamed Sostegno), began receiving large sums from companies Dremin represented, along with instructions on where to send them. In every instance, he received his directions via an anonymized email address.

Rebasso worked on behalf of three insurance companies registered in Dagestan, a troubled North Caucasus republic within the Russian Federation.

At least some of the money appeared to be of criminal origin.

One of the companies Dremin represented, National Insurance, was directed by Russian businessman Maxim Vedenin. In 2011, Vedenin would be sentenced to 19 years in prison for robbery and the murders of two prostitutes.

Prior to that, Vedenin’s company had received money from a widely-known fraudulent scheme involving fuel at Moscow’s Sheremetyevo airport that OCCRP uncovered in 2012.

Between 2003 and 2008, Moscow’s busiest airport bought fuel through a long chain of intermediaries that grossly inflated its cost. According to court documents, phantom companies earned at least $200 million in unnecessary markups in 2006 and 2007 alone. The Russian government lost more than 1 billion rubles ($40 million) in tax revenue from the scheme. The higher fuel costs also meant higher airplane ticket prices for the travelling public.

A portion of the money generated by the scheme was laundered through the Troika Laundromat. Vedenin’s company, National Insurance, received some of the proceeds, and then sent them on to Rebasso’s company.

The Austrian lawyer then sent the funds into the Troika Laundromat, using it as a money laundering system. Over the same period, between December 2006 and March 2007, he sent $19.4 million to the accounts of Nixford and Industrial Trade Corp. To justify the transfers to the bank, he provided false invoices indicating he had bought “consumer goods” from the Troika Laundromat companies, or was simply paying “for bills.”

All but one of Dremin’s companies have been dissolved, and he couldn’t be reached for comment.

Raiffeisen Looks In

Despite Rebasso’s efforts to mask his money transfers as legitimate trade deals, his own bank began to investigate the financial activity in the spring of 2007.

On March 15, Rebasso’s office received a letter from his bank’s legal department inquiring about a “sharp increase in transaction amounts” on one of his accounts. The bank wanted to know on whose behalf Rebasso was acting.

A few days later, Rebasso responded in a letter, explaining that he was handling “foreign payments” for three Russian insurance companies. He also provided their names, their information from the Russian commercial register, and evidence of his business relationship with them.

The bank appears to have been satisfied with Rebasso’s explanation, because afterward, his transfers continued.

(A representative of RLB said the bank could not comment on its clients and that it had complied with all anti-money-laundering obligations.)

A Last Client

In mid-2007, Rebasso’s statement to police says, Alfis Mirgunov, one of the Russian partners in his arrangement with Dremin, got in touch. Mirgunov planned to start his own financial enterprise and wanted Rebasso to open bank accounts in Austria on his behalf. Once again, the lawyer agreed.

He opened three new RLB accounts for his company, Schulhof, to handle the anticipated load. The accounts were denominated in U.S. dollars, euros, and Russian rubles and soon, more money started to pour in. Once again, Rebasso received his instructions from an anonymous e-mail address, this time identified only by a sequence of digits.

In mid-2007, Rebasso’s statement to police says, Alfis Mirgunov, one of the Russian partners in his arrangement with Dremin, got in touch. Mirgunov planned to start his own financial enterprise and wanted Rebasso to open bank accounts in Austria on his behalf. Once again, the lawyer agreed.

Over two months near the beginning of 2008, Rebasso wired $68.3 million in 106 individual transfers to a bank account owned by Vantrel Invest Ltd., a New Zealand–registered shelf company.

Vantrel doesn’t appear to be a Troika Laundromat company; rather it is an intermediary that sent millions on to the Laundromat. (Vantrel’s bank account was held at Ukio Bankas, where many Laundromat companies held their accounts.) Documents related to the transactions said they were to buy mobile phones, though this explanation is almost certainly another fiction.

In his confessional letter, Rebasso told the Austrian police that he stopped working for the Russians in 2008. It isn’t known how much money he took for his services.

“I ended this activity at the end of February,” he wrote. “Among other reasons, primarily because the scope overwhelmed my control options.”

His hesitation appeared to be only part of the truth.

In fact, that month, Rebasso’s Austrian bank, RLB, had had enough. His transactions had apparently triggered another serious review, and senior executives told Rebasso he would need his own banking license to continue such large transfers.

The Finlist Fraud

Though he had stopped working with his Russian partners, Rebasso’s troubles were just beginning. He appeared to have become an unwitting facilitator of a fraudulent investment scheme.

According to his letter, in June 2008, Rebasso started receiving emailed complaints from ordinary Russians who said their savings had been stolen.

Rebasso described the correspondents as “rather simple-minded, not very wealthy people who were baited with internet ads.”

Apparently, the victims of the scheme had been offered what appeared to be lucrative investment opportunities through a platform called Finlist Forex Found. Then, without Rebasso’s knowledge, they were instructed to send their money to the accounts of his Austrian company, Sostegno.

Rebasso said the Russian fraudsters provided the investors with fake documents bearing his forged signature (some of these were shared with him by the angry correspondents). When the money arrived in his accounts, Rebasso sent it on without being aware of its origins.

Now the victims were furious, demanding repayment of money he had already sent on to the Laundromat.

Rebasso said the Russian fraudsters provided the investors with fake documents bearing his forged signature (some of these were shared with him by the angry correspondents). When the money arrived in his accounts, Rebasso sent it on without being aware of its origins

Rebasso got in touch with Mirgunov and asked what was happening. The Russian told him he would fix the problem and reimburse anyone who had lost money. But he never did, and by the end of the year, Rebasso sent his letter to the Federal Criminal police.

The Beginning of the End

The police forwarded the case to the public prosecutor’s office in Vienna. Nothing appeared to happen. On Dec. 3, 2010, two years after his complaint, Rebasso was notified that police had ended their case. It had been dismissed because the public prosecutor decided the case was outside Austrian jurisdiction. “Foreign acts of foreigners,” the statement read.

Rebasso’s own story was nearing its end.

In late July 2012, as he walked from his office to his Mercedes SUV in an underground parking lot, he was ambushed by two men. His car was later found empty in a different location, and shortly after his disappearance, his family received a demand: The kidnappers wanted a 435,000–euro ransom. After no deal was reached, Rebasso’s body was found three weeks later in a forest near Vienna. Austrian authorities concluded that he had been suffocated, probably while he was taken into a headlock.

Soon afterward, two former Moscow police officers were arrested and charged in connection with the ransom demand — but not for Rebasso’s kidnapping and murder. They were sentenced to eight and nine years in prison, respectively.

It’s still unclear who ordered Rebasso’s murder and why, though media and police speculated that victims of the investment fraud had hired the officers to recover the money.

More than six years later, the exact circumstances of Rebasso’s death are still unclear.

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The Troika Laundromat: How Vast Offshore Network Moved Billions With Help From Major Russian Bank

The Laundromat wasn’t just a money laundering system. It was also a hidden investment vehicle, a slush fund, a tax evasion scheme, and much more.

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The Troika Laundromat: How Vast Offshore Network Moved Billions With Help From Major Russian Bank
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At first blush, Ruben Vardanyan and Armen Ustyan have nothing in common beyond their Armenian roots.

Vardanyan is a wealthy Russian banker who once led Troika Dialog, the country’s largest private investment bank. He’s spoken at the World Economic Forum in Davos and spent tens of millions of dollars on philanthropic projects in his native Armenia. Ustyan is a seasonal construction worker who shares a chilly apartment with his wife and parents in northern Armenia when he isn’t renovating flats in Moscow.

Ustyan’s name and a copy of his passport appear in the bank documents for an offshore shell company that played a role in Troika’s system. The company was one of at least 75 that formed the complex financial web, which functioned from 2006 to early 2013. Over that period, Troika enabled the flow of US$ 4.6 billion into the system and directed the flow of $4.8 billion out. Among the counterparties on these transactions were major Western banks such as Citigroup Inc., Raiffeisen, and Deutsche Bank. The dozens of companies in the system also generated $8.8 billion of internal transactions to obscure the origin of the cash.But Ustyan’s signatures on documents he says he’s never seen draw a direct line to Troika — and to a financial Laundromat that shuffled billions of dollars through offshore companies on behalf of the bank’s clients, many of whom were members of Russia’s elite. The system enabled people to channel money out of Russia, sidestep restrictions in place at the time, hide their assets abroad, and launder money. It also supplied cash to Russian President Vladimir Putin’s friends and powerful oligarchs, and enabled criminals to mask the illicit origins of their cash.

(Citigroup didn’t respond to a request for comment on this story; Raiffeisen declined to comment, citing client confidentiality; and Deutsche Bank said it had “limited access” to information about Troika client transactions and couldn’t comment on specific businesses for legal reasons.)

At the time, Vardanyan was Troika’s president, chief executive officer, and principal partner. He enjoyed a reputation as a Western-friendly representative of Russian capitalism, known for working to improve the country’s business environment and for co-founding the Moscow School of Management Skolko

As with the previous Laundromats, many of the large transactions were made on the back of fictitious trade deals. The bogus deals were invoiced variously as “goods,” “food goods,” “metal goods,” “bills,” and “auto parts.” All the invoices included in the leak were signed by proxies and sent from Troika.ru email addresses. Meanwhile, employees at Troika were setting up the opaque financial system — dubbed here the Troika Laundromat because of its resemblance to previous money laundering schemes uncovered by OCCRP.

This portrait of the operation emerges from a trove of leaked banking transactions and other documents obtained by OCCRP and the Lithuanian news site 15min.lt, and shared with 21 media partners.

As a whole, the data set includes over 1.3 million banking transactions from 238,000 companies and people, as well as thousands of emails, contracts, and company registration forms. This analysis of Troika’s network is based on a subset of the data.

In an interview, Vardanyan said his bank did nothing wrong and that it acted as other investment banks did at the time. He stressed that he couldn’t have known about every deal his enormous bank facilitated for its clients. Reporters found no evidence that he was ever investigated or accused of any wrongdoing by authorities. His signature was found on only one document in the entire scheme, in which he gives a loan to a Troika Laundromat company.

Vardanyan described the system as a private wealth management service.

Referring to the constellation of offshore companies that comprised the Laundromat, he said: “Those are technical service companies of Troika Dialog clients, among them, mine.”

“It could be called a ‘multi-family office,’” he said. “A similar practice still exists at foreign banks. Most of their clients work through international companies. I repeat: We always acted according to the rules of the world financial market of that time … Obviously, rules change, but measuring a market in the past by today’s laws is like applying modern compliance standards to the time of the Great Depression. You’ll agree that this distorts the true situation.”

Asked about the fictitious trade deals, Vardanyan said Troika Dialog’s revenue topped 2 trillion rubles from 2006–2010 ($63–85 billion, depending on currency fluctuations) and that he “couldn’t possibly know about all the deals in a company of this size.”

Though such practices were considered business as usual in Russia at the time, specialists note that systems like the Troika Laundromat can have serious repercussions.

The schemes stunt national economic development, undermine human security, and diminish the quality of life for people left behind, said Louise Shelley, director and founder of George Mason University’s Terrorism, Transnational Crime, and Corruption Center and author of the book “Dark Commerce.”

“Money laundering countries, particularly in the developing world, are losing enormous amounts of capital that are needed for infrastructure development, education, health, [and] the development of new businesses, of entrepreneurship,” Shelley said. “With this much money lying overseas, you can do all sorts of malicious things. You can interfere in electoral processes. You can help pay for fake news.”

Criminal Services

The Laundromat wasn’t just a money laundering system. It was also a hidden investment vehicle, a slush fund, a tax evasion scheme, and much more.

Troika’s clients also used it to buy properties in Great Britain, Spain, and Montenegro; to acquire luxury yachts and artwork; to pay for medical services and World Cup tickets; to cover tuition at prestigious Western schools for their children, and even to make donations to churches.

In addition, the Troika Laundromat enabled organized criminal groups and fraudsters to launder the proceeds of their crimes. OCCRP and partners have identified several high-level frauds perpetrated in Russia that used Laundromat companies to hide the origins of their money.

Troika’s clients also used it to buy properties in Great Britain, Spain, and Montenegro; to acquire luxury yachts and artwork; to pay for medical services and World Cup tickets; to cover tuition at prestigious Western schools for their children, and even to make donations to churches.

One of these schemes, known as the Sheremetyevo Airport fuel fraud, took place from 2003 to 2008 and artificially inflated aviation fuel prices while depriving the Russian state of more than $40 million in tax revenue. The scheme led to a hike in plane ticket prices. More than $27 million was sent by companies involved in the fraud to Troika Laundromat accounts. Vardanyan has not been implicated in the scheme and said he had no knowledge of it. In 2010, two years after the fraud ended, Troika Dialog began consulting for the airport along with Credit Suisse.

A second significant criminal inquiry tied to the Laundromat, from which $17 million ended up in the system, involves a tax avoidance scheme allegedly perpetrated by several Russian insurance companies. A man named Sergei Tikhomirov was accused of concluding false service contracts with the insurers as a pretext for having them send him large sums of money, which his accusers say he cycled through several accounts before depositing it abroad or cashing in. A portion of the money ended up in the Laundromat. (Tikhomirov did not respond to phone calls seeking comment.)

Roldugin didn’t respond to an email requesting comment, and Vardanyan said that he knew of the cellist, but was not aware that he had any business dealings with Troika.In a third case, at least $69 million went to companies associated with Sergei Roldugin, a Russian cellist and one of Putin’s best friends, who became famous after his vast unexplained wealth was revealed by OCCRP, the International Consortium of Investigative Journalists, and other media partners in the Panama Papers project. Some of the money that Roldugin’s companies received from the Laundromat originated in a massive Russian tax fraud exposed by Sergei Magnitsky, a Russian lawyer who died in jail after revealing it.

The Troika Laundromat enabled organized criminal groups and fraudsters to launder the proceeds of their crimes. OCCRP and partners have identified several high-level frauds perpetrated in Russia that used Laundromat companies to hide the origins of their money.

Companies involved in the fraud exposed by Magnitsky moved more than $130 million through the Troika Laundromat. In fact, hundreds of millions of dollars went into and out of the Laundromat for unknown purposes.

Vardanyan said he was not aware of any of these transactions.

“Understand, I’m no angel,” he said. “In Russia, you have three paths: Be a revolutionary, leave the country, or be a conformist. So I’m a conformist. But I have my own internal restraints: I never participated in loans-for-shares schemes, I never worked with criminals, I’m not a member of any political party. That’s why, even in the ’90s, I went around with no security guards. … I’m trying to preserve myself and my principles.”

Vardanyan and his family were among those who received money from the Laundromat. More than $3.2 million was used to pay for his American Express card, went to accounts belonging to his wife and family, and paid school fees for his three children in Great Britain.

Asked about these sums, Vardanyan said the offshore companies Troika created serviced his own companies in addition to the bank’s clients.

Troika as Capstone

The Troika Laundromat is unique among the Laundromats that have been uncovered in recent years in that it was created by a prestigious financial institution.

Like all investment banks, Troika handled stock and bond issuance, initial public offerings, and acted as an underwriting agent. It also had a strong relationship with the local office of Citibank Inc., with up to 20 percent of Troika’s new investors coming via the American behemoth. That made New York-based Citibank Troika’s biggest “external agent,” according to a 2006 interview with Troika co-founder Pavel Teplukhin. (Citibank didn’t respond to requests for comment.)Established in the early 1990s, Troika Dialog became Russia’s largest private investment bank. It operated under Vardanyan’s leadership until 2012, when it was purchased by Sberbank, the nation’s largest state-owned lender.

The Troika Laundromat is unique among the Laundromats that have been uncovered in recent years in that it was created by a prestigious financial institution.

Other major international banks, including Credit Suisse and Standard Bank Group, did significant business with Troika as well.

Starting in 2006, Troika employees began putting together the pieces of the Troika Laundromat.

Four essential elements are needed to build a functioning Laundromat: a bank with low anti-money laundering compliance standards; a maze of secretive offshore companies to hold accounts at the bank; proxy directors and shareholders for both the companies and the accounts; and the so-called formation agents that can quickly create, maintain, and dissolve the offshore companies as needed.

The bank orchestrated all of these components of the Troika Laundromat, in addition to directing the money flows and fake trade deals that made up its operations.

The pivotal mechanism was based on trade: Shell companies created bogus invoices for non-existent goods and services to be purchased by other companies in the system. The practice provides a fig leaf of legitimate economic activity that makes the transactions appear less suspicious to regulators.

Al-Qaida founder Osama bin Laden used a similar system to move money around the Middle East, she said.“You’re disguising an illegal payment by pretending that it is linked to a shipment of goods,” said Shelley, the George Mason corruption expert. “The trade-based system is one of the most central parts of money laundering in the world today.”

If Troika was the capstone of the Laundromat, its cornerstones were three British Virgin Islands-based shell companies: Brightwell Capital Inc., Gotland Industrial Inc., and Quantus Division Ltd. Brightwell’s first known transaction was on April 12, 2005. Gotland was established on Feb. 17, 2006, and Quantus followed six months later on Aug. 23.

An analysis of these companies’ banking records reveals how they put the Laundromat together: Starting in 2006, they made numerous small payments to a formation agent called IOS Group Inc. to create the dozens of companies that comprised the complete Laundromat. IOS didn’t respond to requests for comment.

The three cornerstone companies then continued making payments to IOS ranging from 40 to almost 5,000 euros over almost six years to keep the entire network operating. Over that span, the total reached over 143,000 euros.

Quantus, for example, paid formation and maintenance fees for the British Virgin Islands-based Kentway SA. This company was later used, among many others, to send millions of dollars to Sandalwood Continental Ltd., a company connected to Sergei Roldugin, the cellist, and one of Vladimir Putin’s oldest friends.

Quantus’ involvement with Kentway demonstrates the many ways in which the Laundromat companies were interconnected. In this case, after first helping establish Kentway, Quantus then funded it with money that Kentway forwarded to Roldugin’s company.

The Bank

To direct the flow of funds through the Laundromat, Troika needed a commercial bank to host accounts for the companies involved. And it needed that bank to avoid looking too closely at the contracts and trades Laundromat businesses used to justify moving money from one offshore company to another.

Troika chose Lithuania’s Ukio Bankas for the job. (The Lithuanian lender would later be seized by the country’s National Bank in 2013 for engaging in risky deals and failing to follow regulators’ orders.) Ukio is known to have set up accounts for 35 companies used in the Troika Laundromat, and likely more.

Because Lithuania wasn’t yet using the euro, Ukio needed correspondent accounts at European banks, such as the Austrian Raiffeisen or the German Commerzbank AG, to handle euro-denominated transactions. Those two lenders and many other large European and U.S. financial institutions accepted Laundromat money, though they did sporadically inquire about the nature of some transactions. After prodding by one of the correspondent banks, for example, some Ukio compliance officers made inquiries about Laundromat payments that didn’t make commercial sense.

“What is the essence of this transaction? We have a contract (attached), but to be honest, I don’t really get what’s happening,” one officer wrote, adding an unhappy face, in relation to a payment that went to a company associated with Roldugin.

By this point, the money had already left Ukio’s accounts.

Asked why Ukio was chosen as the banker for the offshore companies Troika created, Vardanyan said it was just one of about 20 banks Troika used around the world.

The Armenian Proxies

A central figure in many of the transactions involving the Laundromat companies was Armen Ustyan. Far from being an investment banker, Ustyan, 34, works seasonally as a construction worker in Moscow.

Ustyan said he had never heard of Dino Capital SA, the Panama-based Laundromat company whose Ukio bank account was registered using his signature. A copy of his passport was attached, but Ustyan insisted he had no idea how it got there. Ustyan’s signature can be found on contracts and banking paperwork in the Troika Laundromat along with those of a few other Armenians. Wearing an old military jacket and hat, he sat down with reporters this January in his cold living room to answer questions about high finance.

At his mother’s request, he wrote his signature on a piece of paper and concluded that the one associated with Dino Capital had probably been forged.

The Armenian said he knew none of this, though he did recall a slim connection to Troika Dialog: While in Moscow looking for work, Ustyan stayed with a Russian Armenian whose brother he said worked for the investment bank and helped him find employment. In addition to having his signature associated with Dino Capital’s bank account, Ustyan is also listed as an attorney authorized to sign contracts on the company’s behalf, and his signature appears on at least $70 million worth of financial agreements.

The Moscow address is indeed that of Nerses Vagradyan, a Russian citizen of Armenian descent. Nerses’ brother, Samvel Vagradyan, is a director of a Russian company that received millions of dollars from Brightwell, a core Laundromat company. A Samvel Vagradyan is also mentioned on Vardanyan’s website as a donor to the banker’s charitable causes. It’s unknown whether Samvel really worked for Troika.

Neither of the Vagradyan brothers could be reached for comment. Ustyan said he doesn’t believe they used his identity.

Another Armenian front man in the Laundromat appears to be Edik Yeritsyan. His identity was used to register an account at Ukio for the Cyprus-based Popat Holdings Ltd. This company was involved in Laundromat transactions worth millions of dollars.

Yeritsyan told OCCRP that he lost his memory three years ago after a car accident and doesn’t remember some parts of his life. However, Ustyan said that he and Yeritsyan lived together in the same flat they were renovating in Moscow.

This article was first published by The Organized Crime and Corruption Reporting Project (OCCRP) a global network of investigative journalists.

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