THE LEMBERGS CASE: TAKING DOWN A MINI-GARCH

C O N F I D E N T I A L SECTION 01 OF 03 RIGA 000685

SIPDIS

NOFORN
SIPDIS

E.O. 12958: DECL: 08/25/2017
TAGS: PGOV KJUS KCOR PHUM LG
SUBJECT: THE LEMBERGS CASE: TAKING DOWN A MINI-GARCH

Classified By: Pol/Econ Chief Tamir Waser for reasons 1.4 b and d


1. (C) Summary: The story of Aivars Lembergs is one of
post-independence Latvia's most compelling yet morally
troubling tales. To much of his electorate in Ventspils,
Lembergs is the brilliant protector of the city's autonomy
and the great provider of prosperity. To successive Lavian
governments and individual politicians, Lembergs' economic
and political patronage network is a force to either co-opt,
plug into, or fight ) but definitely not to ignore. As
such, Lembergs' arrest on charges of large scale money
laundering and bribery is seen as potentially the most
important public corruption case in Latvia's history.
Observers refuse to get too hopeful as they are pessimistic
of the General Prosecutor's ability to win, let alone obtain
a sentence of real jail time. However, recent moves on the
part of the government and Lembergs himself are signals that
someone in power is worried.

2.(C) So who is Lembergs and why is he important? Born in
the eastern Latvian town of Jekabpils in 1953, Lembergs
obtained a degree in economics from the University of Latvia
and settled in the port city of Ventspils in 1977. Lembergs
began his career as an economist at a Ventspils port factory
and, after a variety of KOMSOMOL and Communist Party jobs, he
became Chairman of the Ventspils Executive Council (City
Council) in 1988. In 1990, Lembergs was elected to the
Latvian Supreme Soviet (parliament) on the pro-independence
Popular Front ticket, however, Popular Front leaders today
say that, if they even remember him, they remember Lembergs
as an opportunist. They say he was definately not a member
of the inner circle of Latvian patriots in those days. In
1994, Lembergs formed his own regional party "For Latvia and
Ventspils" and was elected mayor of Ventspils. He has been
overwhelmingly reelected to that position ever since.


3. (U) Lembergs, like so many others in Latvia, made his
initial fortune in the early 90s, when he bartered political
influence for shares in various off-shore companies, many of
which are now indirect owners of key portions of the
infrastructure of Ventspils' port, including the oil terminal
Ventspils Nafta. Most things about Aivars Lembergs are
"estimated" such as his net worth, his holdings, and his
influence. Until recently, Lembergs was among the ten
richest individuals in Latvia, that is, until he moved most
of his assets into the name of his wife, who, incidentally,
was named the richest woman in Latvia. Mainly due to his
ownership and control of Mediju Nams, a company that
publishes six newspapers, he has also proven adept at keeping
himself in the public eye without revealing, or having others
reveal, details of his personal and business life. One of
the newspapers, Neatkariga Rita Avize, Lativa's second
largest in terms of number of subscribers, serves as
Lembergs' mouthpiece by organizing press campaigns against
his enemies ) the favorites being the US Embassy, the Soros
foundation, and the anti-corruption bureau ) and expounding
Lembergs' position on every significant event in Latvia.


4. (C) Until his indictment in early 2007, Lembergs managed
to avoid indicment for corruption and conflict of interest by
setting up complicated ownership, management, and income
distribution structures for his business holdings. He has
allegedly financed several political parties through
'political shares' in Ventspils companies as well as pay offs
currently being called "Lembergs' Grants" or stipends to
Members of Parliament and political parties.


5. (C) The origins of Lembergs' wealth remain murky. For
the last ten years, rumors have consistently fingered
Lembergs as the main decision-maker behind the so called
"Ventspils Group" ) a collection of powerful transit
concerns based in Ventspils port. The key companies in the
group include crude oil terminal Ventspils Nafta, oil
products terminal Ventbunkers, potassium terminal Kalija
Parks, and ammonia terminal Ventamonjaks. There is no
credible estimation as to the value of Lembergs' alleged,
but undocumented, holdings in various off-shore companies
associated with the Ventspils Group. What is clear is that
over the last several years, Lembergs' declared wealth has
grown significantly. Comparing the Ventspils mayor's
official income declaration for 2002 to his 2006 declaration,
there was a significant increase in wealth without any change
in business interests or growth.


6. (C) In March of this year, Lembergs was charged with
large scale money laundering and public corruption. The Riga
Center District Court made the decision to arrest Lembergs on
the grounds that he could potentially interfere with the
investigation process or intimidate potential witnesses and
placed him in prison. Though he was placed in prison he
continually appealed this decision first on the grounds that
it was ridiculous to place him in prison and then on health

RIGA 00000685 002 OF 003


grounds. On July 10th, the Riga Regional Court, in a closed
court proceeding, released Lembergs from state prison and
placed him in house arrest. This was the sixth appeal by
Lembergs to the court demanding his release from prison.
This was quite the blow to the Prosecutor's office which has
only just decided to once again appeal to have him placed in
prison. There is much confusion in the public and much
speculation as to the reasons for this decision. To date,
the judge's ruling has not been publically released. (Note:
In 2006, Lembergs was also charged for abuse of office but
the charges were less serious and no jail time was involved.
This case was dropped shortly after charges of money
laundering and corruption were brought against him.)


7. (C) Also under investigation in this case are the council
Chairman of Ventspils Nafta and President of JSC Latviajas
Naftas Tranzits, the Council Chairman of Ventmonjaks and
other Ventspils companies, a high powered Latvian attorny,
Lembergs' "book keeper" whom they are hoping to be able to
"flip" into confessing against him, the Board Chairman of
Latvijas Naftas Tranzits, and several Ventspils businessman
connected to Lembergs who work on the council of the Latvian
Shipping Company.



8. (C) Lembergs' supporters view his release to house arrest
as a major victory. However, the Prosecutor's Office has
just announced that Lembergs is now suspended as Ventspils
mayor and Chairman of the Ventspils free port administration
until further notice. This is a new and unprecedented move
on the part of the Prosecutor General which has left many
observers scratching there heads as to what comes next. This
announcement is a bit strange, will certainly be challenged
by Lembergs, and is unprecidented. Previously, the
Prosecutor General has said that he did not have the power to
suspend Lembergs as mayor and that only the Minister of
Regional Affairs Stokebergs had the authority to suspend a
public official. The minister, in turn, said that he could
not in good faith suspend Lembergs since the prosecutor had
not provided the minister the evidence against Lembergs. But
now, the Posecutor General asserts that he has such
authority, which raises the question why it was not used
earlier.


9. (C) Aivars Lembergs is energetic, clever and confident.
He styles himself a master of the universe in dealing with
Russian elites, but many say Russia's leading oil businessmen
are tired of 'the little tyrant from Ventspils." He clearly
sees himself as a champion of his city, a perspective
reinforced by the adoring fans and pensioners who met him
with flowers and cheers upon his release from prison. One
reason for Lembergs' local popularity is his reputation for
having been the driving force behind Ventspils' economic
prosperity. Ventspils per capita GDP far exceeds that of
Latvia's average each year, and the city itself is extremely
modern and immaculate compared to the rest of Latvia. City
services, sports and educational facilities are ample, well
funded and efficiently run. Lembergs is generally accessible
to his constituency and his deputies are known to be
courteous and efficient by Latvian standards. Because of this
reputation, the Green Party and Farmers Union (ZZS) announced
Lembergs as their candidate for Prime Minister last year, a
move that eared them a boost in the polls during the
elections.



10. (C) After this announcement of Lembergs as a PM
candidate, there was much national, and international concern
as to the state of the rule of Law in Latvia. This concern
was later reinforced when the government clashed with then
President Vike-Freiberga over controversial amendments to the
laws on security institutions which were pushed through the
Parliament with unprecedented haste. (see Reftel) This lead
to much speculation as to who was really behind the push for
this change, as in who really needed to know about law
enforcement activities. (Note: Prior to his arrest, Lembergs
attended coalition council meetings with the Prime Minister)



11. (C) Many view the current charges against Lembergs and
his cronies as the ultimate test of Latvia's democracy.
Lembergs' fall will change the balance of power amongst the
oligarchs in particular and the political power structure of
Latvia in general. It is unclear if Lembergs, should jail
time become inevitable, will 'spill the beans' on those in
positions of power whom he has funded. If the Prosecutor
General can convict Lembergs, and if the judiciary will
actually hand down a jail sentence and heavy confiscation of
property, Latvia will have proven to the rest of the world
that the principle of equal justice under the law prevails.
If not, Latvia will have demonstrated that it is indeed a
small country ruled by mini-garchs.

RIGA 00000685 003 OF 003


BAILEY