Odessa is Ukraine's Real Battleground
Things are changing on Ukraine’s Black sea coast, especially in the chief port of Odessa which is part of what President Putin ominously described as “New Russia”, the lands conquered from the Turks and the Crimean Tartars in the late 18th Century. What can the new government do to retain control of a city riddled with smuggling and corruption?
It's not all about the East
The fighting is in the east but the white collar and big business battles are just as much in Kyiv and Odessa. The recent deaths of mainly pro-Russian activists in the trade union building fire have highlighted the volatile situation in Odessa and the extent of Russian influence there. The “little green men” we heard about in Eastern Ukraine don’t need to be brought in to Odessa. They are already there as the city is a favoured retirement location for “former” naval and military personnel from Soviet times, not least from the GRU military Intelligence. No one ever retires from the GRU.
This is really worrying the new government in Kyiv, as well it might. And they are actively seeking help from the West to tackle the “deep state” issues “down there”. Such help will, if forthcoming, have to be much more focused and culturally, strategically and tactically integrated than the past ad hoc and sometimes uncoordinated assistance.
Odessa matters. It is to a significant extent the West Berlin or Vienna of any new Cold war between a Western leaning Ukraine and Russia. Like those cities, it is likely also to see some interesting and unusual alliances, because everyone has some idea of where the bodies are buried. Much of Ukraine’s consumer goods agricultural products come in to Odessa and out of it. This is also the case for much of Russia’s agricultural imports.
Corruption and chickens
The loss of Crimea hasn’t changed that yet. Sebastopol is not a deep sea container port and won’t be for years. Both countries rely heavily on consumption taxes so these imports are closely linked with public revenues. All this means that there are enormous temptations for bribery and corruption. An example is the massive over importation of South American chicken imports to the Transnistrian enclave in Moldova, where the audit trails go cold. Sales are actually made off record from big supermarkets in Ukraine, Transnistria, Moldova itself and probably Romania. Everyone gets a cut of the untaxed profits, including Russian or pro-Russian groups based in or connected with Odessa.
What the new Chief of the SBU state Security service, Mr. Nalyvaichenko, can do and actually will do in Odessa will be a key early indicator of who is coming out on top in the long term. As every “side” has profited from the corruption and smuggling in Odessa and linked to it, everyone is vulnerable to disclosures. The sides are the pro Orange Revolution elites, the pro Yanukovychites and the Russians, the latter obviously closely linked with the Russian government and Putin’s inner circle. But the divides are by no means absolute and the oligarchs typically have links to several or all of these camps.
Going after one group is obviously going to lead to a backlash from that organisation, which will have the power to embarrass or blackmail the other interests. The targeting of Russian linked groups is obviously going to lead to the counter argument that the clean-up is really a disguised anti-Russian or anti-Russian speaker exercise, rather than a genuine drive against corruption. So it will be as interesting to see who is not targeted as much as who is. The SBU has been, for many years, heavily penetrated by its Russian counterpart, the FSB, and that is before the ubiquitous little green men in Odessa are taken into account.
The other law enforcement agencies in Ukraine are watching Mr. Nalyvaichenko’s balancing act with great interest too. They realise that the public coffers are heavily dependent on control of Odessa, and that he who has that control has his finger on Ukraine’s jugular. At the height of the “invasion” fears in early April, the Customs Service felt that loss of commercial control of Odessa was a real possibility, and with it loss of state independence. The South matters at least as much as the East.
The west needs to step up
But their western counterparts need to raise their game significantly. It is no longer enough – it never was – to see how Ukraine can help them on issues such as illegal migration, cigarette smuggling, heroin and more recently cocaine trafficking and human trafficking for sexual purposes. It now has to be about how the EU and its Member states and Turkey and the USA and Canada can help to track down all the proceeds of these crimes and the gargantuan levels of commercial smuggling and corporate tax evasion. The vast sums involved here are increasingly being deposited outside the EU and the USA through long corporate paper chains.
You can be sure that some people – many people – in London’s pinstripe army of accountants, lawyers and company formation agents and shipping brokers and insurers are facilitating this or have a pretty good idea who is.
What is different now is that there are some people in Ukraine who have stepped up to the plate. And the information they can provide will be very embarrassing to Russia – at all levels. That information could be a very useful bargaining chip for the EU and the USA, so let us hope Ukraine gets proper recognition for providing it. It is going to take enough of the very best people, in the best places at the best times, to do this. Let us hope they have already started, and realise that anything linked to Odessa is not just linked to Kyiv but also to Moscow and St. Petersburg.