Identifier
Created
Classification
Origin
07TBILISI2978
2007-11-28 14:24:00
CONFIDENTIAL
Embassy Tbilisi
Cable title:  

GEORGIAN INVESTIGATION OF PATARKATSISHVILI

Tags:  PREL PGOV BEXP EFIN GG 
pdf how-to read a cable
VZCZCXRO7969
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #2978/01 3321424
ZNY CCCCC ZZH
R 281424Z NOV 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 8314
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 TBILISI 002978 

SIPDIS

SIPDIS

STATE FOR EUR/CARC, EUR/FO, EUR/RPM, EEB/IFD/OIA AND EEB/CBA
COMMERCE FOR 4231 DANICA STARKS

E.O. 12958: DECL: 11/28/2017
TAGS: PREL PGOV BEXP EFIN GG
SUBJECT: GEORGIAN INVESTIGATION OF PATARKATSISHVILI
BUSINESS INTERESTS AFFECTS U.S. INVESTORS


Classified By: Ambassador John F. Tefft, reason 1.4(b) and (d)

C O N F I D E N T I A L SECTION 01 OF 03 TBILISI 002978

SIPDIS

SIPDIS

STATE FOR EUR/CARC, EUR/FO, EUR/RPM, EEB/IFD/OIA AND EEB/CBA
COMMERCE FOR 4231 DANICA STARKS

E.O. 12958: DECL: 11/28/2017
TAGS: PREL PGOV BEXP EFIN GG
SUBJECT: GEORGIAN INVESTIGATION OF PATARKATSISHVILI
BUSINESS INTERESTS AFFECTS U.S. INVESTORS


Classified By: Ambassador John F. Tefft, reason 1.4(b) and (d)


1. (C) Summary: The closure of Imedi television and the
investigation of its finances and operations by the Goverment
of Georgia has made headlines around the world. The
Government has also begun investigation of other businesses
in which oligarch Badri Patarkatsishvili is a principal
investor. On November 20, the Government of Georgia took
action to impose temporary administration by the National
Bank of Georgia on Standard Bank, a Tbilisi bank that is
owned by Badri Patarkatsishvili and a group of other
investors, including some American citizens associated with
the Salford Group. The same day, it also entered and seized
records from two other businesses owned by Patarkatsishvili
and Salford. It has closed not only the
Patarkatsishvili-controlled TV station Imedi, but also an
amusement park he owns in Tbilisi with Salford. Not all of
Salford's and Patarkatsishvili's interests have been
impacted, however. Salford owns an interest in one of the
two largest cell phone companies in Georgia, Magticom. No
action against Magticom or other communications assets owned
by Salford in Georgia has been reported. However, an
American citizen director of Salford has been questioned and
named a suspect in an influence peddling case that is not
altogether convincing, at least thus far as explained by the
government. The Embassy has made it clear to the GOG that
while we do not countenance criminal activity and cannot
interfere in a criminal investigation, we are extremely
concerned about the use of legal processes for political ends
by the government. End Summary.

STANDARD BANK UNDER ADMINISTRATION
--------------


2. (C) Salford Group is an American-based company that is
involved in financing and managing a number of investment
projects in Georgia for Patarkatsishvili. The National Bank
of Georgia (NBG),the country's central bank, states that it

took control of Standard Bank because depositors were
withdrawing large amounts of money from the bank, putting its
solvency at risk. The bank's American shareholders contend
that the government influenced several of the bank's large
customers to withdraw their funds and thereby manufactured a
liquidity problem that permitted it to take control of a
major asset owned by Patarkatsishvili, who is a rich,
powerful and determined foe of the government. The
government denies it influenced the bank's customers, but
admits that some withdrawals may have been motivated by
customers' concerns about the bank's close association with
Patarkatsishvili. It also alleges that Patarkatsishvili made
withdrawals himself, and is using the bank as a conduit for
cash to pay demonstrators and anti-government agitators.

THE RUKHADZE CASE
--------------


3. (C) Besides its administrative action against Standard,
the government has opened a criminal investigation of Irakli
Rukhadze, a dual Georgian-American citizen and the managing
director of Salford Group, which owns Standard Bank.
Rukhadze was stopped at the Tbilisi airport on his way out of
the country and questioned for several hours on November 20.
He is not yet charged, but is a "suspect" in a case of
influence peddling in violation of Georgian law. According
to the government, Rukhadze met with the owner of People's
Bank of Georgia, Irena Jincharadze, and offered to intercede
with the Bank of Georgia to resolve a dispute between
People's Bank and the NBG in return for Jincharadze's
agreement to a merger of Standard and People's. Rukhadze
allegedly recruited a Standard Bank director to help him, and
this man actually met with an NBG officer to try to persuade
her to resolve the dispute. Documents provided to the
Embassy state that the facts are evidenced by tape-recorded
and videotaped conversations. Rukhadze has told the Embassy
that many of the questions posed to him during his
interrogation related not to the influence peddling case but
to his relationship with Patarkatsishvili and the events of
November 7 in general. He believes the GOG is mistaken to
regard Salford as an alter ego of Patarkatsishvili, because
Salford has many other investors other than Patarkatsishvili
and many business interests that are entirely separate.

SALFORD'S CONCERNS
--------------


4. (C) On November 27, Americans Paul Blyumkin, Peter Nagel
and other Salford officers visited the Ambassador. They
describedQandard as being a large part of Salford's overall

TBILISI 00002978 002 OF 003


portfolio of investments and repeated their charges that the
government has influenced large depositors, including Telasi,
a Tbilisi electric utility, and Azerbaijan International
Bank, to withdraw their deposits. In the case of the
Azerbaijan bank, the call allegedly was made by Vano
Merabishivili, the Minister of Internal Affairs, himself.
Rukhadze, who was not present at the meeting, has told us
that Ministry of Internal Affairs officer who entered the
bank on November 20 took away a list of Standard's clients,
under threat of destroying equipment "like at Imedi", the
television station forcibly closed on November 7. According
to Rukhadze, the lists have been used by government officials
to locate clients and pressure them to move their accounts
out of the bank. The Salford executives said that despite
the withdrawals, Standard's liquidity ratios had not slipped
below the required level when the NBG took action.
Nevertheless, they believe Standard will be liquidated. They
said the new Prime Minister, Lado Gurgenidze, has refused to
allow NBG staff to sit down with the bank's staff to discuss
and work out their problems. PM Gurgenidze is the former CEO
of the Bank of Georgia, and the Salford investors allege that
the Bank of Georgia has quickly approached Standard's
customers and offered to replace the services the customers
had been receiving from Standard. They also claim that
Giorgi Kadagidze, head of Georgia's Financial Monitoring
Service, to whom the NBG has given charge of Standard, has
begun selling off loans to other banks. The investors also
raised their concerns about what they view as the trumped-up
criminal charges that may soon be brought against Rukhadze.


5. (C) Other Salford/Patarkatsishvili projects have been
subject to police action and investigation in recent days.
On November 7, masked law enforcement officers entered and
locked up Mtatsminda Park, an amusement park, without
warning, explanation or court-issued documents. The only
explanation Salford has received for the action is a
television appearance by the Tbilisii deputy mayor, who
claimed Mtatsminda had not paid its November rent to the
city. Rukhadze told us the payment was not due until
November 17. On November 20, besides Standard Bank, the
offices of a Salford-owned Internet service provider,
Telenet, and the bottler of Borjomi mineral water, Georgia
Glass and Mineral Water (GG&MW),were occupied by the
enforcement division of the Ministry of Finance's Revenue
Service, who took financial records and computers away for
investigation. Salford has ownership interests in the
cellular telephone company Magticom, the cable television
company Ayety, and other communications companies in Georgia
through Metromedia, Inc., none of which have reported trouble
with the government.

THE GOVERNMENT EXPLAINS ITSELF
--------------


6. (C) After receiving a complaint from Rukhadze about his
detention for questioning, the Ambassador called Eka
Sharashidze, Chief of Staff for President Saakashvili, on
November 21. He raised concerns about the use of criminal
cases such as that opened against Rukhadze, and tax and other
legal actions against businesses such as GG&MW, being used as
political tools. He said he wanted to be sure that
investigations of companies in which American investors had
interests fully met legal standards and were not politically
motivated. Sharashidze said she would investigate the
situation. Rukhadze later reported that documents and
records seized from GG&MW and Telenet were returned on
November 22, apparently as a result of intercession by the
Embassy and other diplomatic missions.


7. (C) On November 26, the Ambassador discussed the Standard
Bank case with PM Gurgenidze. Gurgenidze said he had met
with Rukhadze earlier in the day. He said that the NBG had
taken control of Standard because the bank was experiencing
severe liquidity problems, caused by Patarkatsishvili rapidly
drawing down reserves. There was a risk of a run on the Bank
and possibly a broader banking crisis in Georgia, he said.
He said that bank examiners had discovered that
Patarkatsishvili had recently wired USD 20 million to
Standard, and one of his aides had then withdrawn the money
in cash, presumably to finance political activities in
Georgia. Gurgenidze said that Patarkatsishvili was
apparently using Standard Bank and GG&MW because they are
cash producers which can fund his political activities. He
told the Ambassador he had reviewed the file on Rukhadze, and
that as a banker himself, he felt that Rukhadze was at a
minimum involved in unethical practices. Gurgenidze was
satisfied that responsible Georgian authorities are engaged
in a "measured, pre-emptive law enforcement action" and not a

TBILISI 00002978 003 OF 003


political vendetta against Patarkatsishvili and his
associates. The Ambassador again stressed that the USG wants
the law to be applied fairly, and specifically had concerns
in this case because American citizens are involved.


8. (C) On November 27, following the meeting with Salford
executives, the Deputy Chief of Mission discussed the
Rukhadze and Standard Bank cases with Deputy Prosecutor
General Nika Gvaramia. Gvaramia stressed that Rukhadze is
only a suspect, and not charged with a crime at this time,
although an investigation is underway to determine if the
talks between Rukhadze and Jincharadze were "just business"
or something criminal. The police have 30 days to make a
case, he said. Gvaramia reiterated that the government acted
against Standard Bank because of concerns about its
liquidity, caused by Patarkatsishvili's withdrawal of up to
USD 40 million. He said that the temporary administration
will end when the liquidity problem is resolved. Asked about
alleged coercion of Standard clients to withdraw money,
Gvaramia said he doubted a government official like
Merabishvili would make such a call in person to the
Azerbaijani bank, since it would quickly become public. He
said he would make inquiries as to who called Telasi.

THE CHOICE: IGNORE CRIMINALITY OR TAKE THE HEAT FOR ACTING?
-------------- --------------


9. (C) Summing up, the DCM told Gvaramia that the
government's moves against Imedi television, Standard Bank
and the other Patarkatsishvili businesses, coupled with the
arrest and exile of Saakashvili's other major foe, Irakli
Okruashvili, have raised serious questions about the
government's use of legal procedures for political purposes.
They could impact negatively on Georgia's chances to enter
NATO and its image in the OSCE and in Washington. Gvaramia
admitted that the current situation is damaging to Georgia
politically and economically, and the effects could last as
much as five or six years. He said that it has become common
in Georgia for criminally linked people to call themselves
politicians and protect themselves by claiming immunity. In
Okruashvili's case, he said, Okruashvili knew charges were
coming and intentionally made a political splash to head them
off. Patarkatsishvili, too, is under investigation, which
will continue even if he is a candidate for president,
although the government would take no action against his
person, Gvaramia said. Gvaramia declared that political
opposition cannot be used as a shield against prosecution.
He insisted the government cannot ignore criminal activity
among the opposition, and if it does, it would have to ignore
corruption among National Movement politicians as well. He
compared the current situation to Shevardnadze's
administration, when the former President made his political
opponents virtually immune and thereby happy and
compromising. But the government then becomes a hostage of
the opposition, he said. The government is faced with a very
hard choice, he concluded, either to ignore criminal activity
or to take the heat from critics at home and abroad.




TEFFT