HERE WE GO AGAIN - ANTI-CORRUPTION CHIEF UNDER FIRE

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000228

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E.O. 12958: DECL: 05/06/2028
TAGS: PGOV KCOR KJUS ASEC LG
SUBJECT: HERE WE GO AGAIN - ANTI-CORRUPTION CHIEF UNDER FIRE

Classified By: Charge Stuart M. Seldowitz. Reason: 1.4 (d)


1. (C/NF) Summary: Two separate events have brought a new
focus on anti-corruption chief Aleksejs Loskutovs, whose
attempted removal from office last fall brought down the
Kalvitis government. Two members of his staff have been
sacked for stealing money seized in investigations, and
indicted Ventspils mayor Aivars Lembergs has suggested that
Loskutovs tipped him off before his March 2007 arrest. The
press coverage has been breathless and former PM Kalvitis has
been ebullient in claiming his vindication. The Prosecutor's
office has opened an investigation into the missing money and
many politicians are so far reserving judgment. Loskutovs
has said that there is no reason for him to step down, but
admitted privately that he felt this crisis was worse than
the one last fall. While the available information does not
to us appear to point to illegal activity by Loskutovs, it
does suggest that he is not the best manager and he displayed
poor judgment in agreeing to meet with Lembergs. The bigger
problem is that a public perception is beginning to develop
that these problems are real and serious, and that Loskutovs
and the anti-corruption agency are just as bad as everyone
else when it comes to corruption. If that perception
hardens, then Loskutovs' own assessment that this is a worse
situation than last fall could be proven correct. End summary


2. (U) The story began April 17 when the KNAB, Latvia's anti
corruption agency, announced that two officials were
suspended for stealing money seized in an investigation.
Press reporting made it seem as those the people involved
were law enforcement agents of the KNAB who were simply
keeping some of the money they found on raids.
Prosecutor-General Maizitis confirmed that he had opened a
criminal probe in the case and hopes to have the results by
the end of May. Former PM Kalvitis could barely contain his
glee at suggesting this showed he was right when he tried to
remove Alksejs Loskutovs as head of the KNAB last fall,
allegedly for poor financial management.


3. (U) The story was compounded by a suggestion in an
interview with a men's magazine by Ventspils mayor Aivars
Lembergs, indicted on multiple corruption charges, that
"Losha" (Russian diminutive for Loskutovs' first name) had
given him advance word of his arrest. In a subsequent
rambling press conference, Lembergs seemed to suggest that he
had met with Loskutovs while under investigation and that
Loskutovs had assured him that all would be fine in his case.
Loskutovs has said publicly that he is prepared to sue
Lembergs for defamation and asked the prosecutor's office to
examine the claims.


4. (U) The press coverage of the two incidents has been
extensive and breathless. One paper printed unsourced
suggestions that KNAB agents were using money seized in raids
as down payments in lucrative property transactions. Another
reported that Loskutovs had "sworn allegiance" to Lembergs at
one point. Even Diena, Loskutovs' and the KNAB's biggest
defenders last fall, said that a "black cloud" hung over the
KNAB. Another journalist who often covers corruption issues
told emboff she was personally disappointed in the chain of
events.


5. (U) Many political figures, including President Zatlers
and PM Godmanis, are saying little, if anything, about the
case, with most saying that will await word from the
prosecutor about his investigations.


6. (C/NF) DCM and pol/econ chief met with Loskutovs April 29
to discuss the situation. Loskutovs opened by saying that he
thought the current situation was "worse than last fall" and
that it had impacted "the prestige of the agency." Regarding
the missing money, he said it was an "unpleasant surprise"
because he "trusted those colleagues." Loskutovs said that
money was seized in raids and kept as physical evidence
because fingerprints, DNA or the kind of money used could be
useful in making a case. He said it was stored under the
supervision of the two individuals, now suspended, both of
whom had top secret security clearances. He claimed that
they stumbled across the missing money by accident - they
needed to provide for subsistence of someone from whom money
was seized and the staff handling it delayed. When they
eventually counted, KNAB officials found that 56,000 lats
(roughly USD 125,000) were missing from among money seized in
several cases.


7. (C/NF) Loskutovs said that he immediately informed
Prosecutor General Maizitis about the missing money and
turned the case over to him for investigation. He said he
also directly informed PM Godmanis, who oversees the KNAB.
On April 18 he claimed that he was summoned to see President
Zatlers. The President was "surprisingly well briefed,"
which Loskutovs attributed to his security advisor, Rozkalns

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(who was rumored as a candidate to replace Loskutovs last
fall),and very critical of Loskutovs. The President then
called for a national security council meeting on April 21 to
discuss the case. Loskutovs claimed that this is improper as
KNAB is not a state security agency. (Comment: We do not
have separate confirmation that the meeting occurred or that
KNAB is not under its jurisdiction, but also have no reason
to doubt Loskutovs' account. End comment.) While the
overall situation was bad, Loskutovs said that he felt better
than last fall since Maizitis is in charge of the process.
This means that that "the rules are clear" and it is not "a
political game."


8. (C/NF) Turning to Lembergs, Loskutovs claimed to have had
three meetings with him - one before being selected as KNAB
chief (which he admitted last fall) and two since being on
the job, both at Lembergs' request. The first of those was
worthless; Lembergs was drunk and incoherent. In the second,
though, Lembergs put great pressure on Loskutovs to keep a
senior investigator sacked for using psychotropic drugs.
Lembergs reportedly said that the individuals was a "key
source" for information on the activities of KNAB and the
prosecutor's office. Loskutovs claimed that he taped the
conversation, turned the tape over to the prosecutor's
office, and that the tape was used as evidence in a closed
hearing last year to keep Lembergs under arrest. He said the
existence of such a tape is known only to a few people as it
very directly shows Lembergs attempting to control a
government official. The official Lembergs wanted to keep on
was restored to office after appealing his removal in court,
but he was later fired when he tipped off a judge, under
investigation for taking bribes, that she was being watched.


9. (C/NF) In a separate conversation with pol/econ chief,
Juta Strike, head of investigations at the KNAB, told much
the same story on recent events. She added that she was at
least willing to consider the possibility that the theft of
money was arranged by "political forces" threatened by the
KNAB's activities in order to embarrass and undermine
Loskutovs and that the prosecutor's office would examine that
possibility. She also added that the Lembergs interview had
been done before the revelation of the missing money, so she
didn't think the timing of the two events was coordinated,
merely fortuitous for the enemies of KNAB. Strike added a
personal aside -- she thinks very highly of Loskutovs, but
acknowledges that his academic background meant he came to
the job without extensive management experience and that has
hurt him.


10. (C/NF) Comment: We lack the full evidence necessary to
draw firm conclusions in this case. Maizitis' investigation
will be essential in this regard. But based on what we do
know, we can draw some preliminary conclusions. First, we
agree with Strike that Loskutovs' background did not provide
him much management experience before taking on this job.
Perhaps a third deputy director, solely for
management/administrative issues, would be beneficial.
Loskutovs admitted that he considered this last fall, but did
not follow through. Second, Loskutovs did not exhibit good
judgment in agreeing to meet Lembergs, especially on
Lembergs' terms. Any such meeting should have taken place
either at the KNAB or a prosecutor's office to dispel any
suggestions that there were secret negotiations going on, and
probably should have included at least one other officials
from KNAB or the prosecutor's office. Based on current
evidence, though, neither of these missteps would strike us
as being enough to remove Loskutovs from office. The problem
is, though, that a perception of reality is beginning to form
that Loskutovs is a weak manager and maybe the charges
leveled last fall against him weren't so crazy, and that he
has, at a minimum, had conversations with Lembergs that
create a perception of untoward activity. If those two
perceptions harden into conventional wisdom in Latvia,
Loskutovs could find himself in trouble. The tepid support
from Diena and other influential media hasn't helped. But a
long holiday weekend came at a good time for Loskutovs and
put a natural break to the breathless coverage.
Additionally, Loskutovs' enemies lack personal credibility on
the issue, given their own issues with allegations of
corruption. We don't believe there is enough information
currently available to suggest that Loskutovs has himself
done anything illegal and his opponents learned last fall
that absent hard facts there could be blow back against them
if they try to sack Loskutovs now. All of this means that
Maizitis' investigation will carry a lot of weight. The
Ambassador plans to meet with the Chief of Staff to President
Zatlers and with PM Godmanis personally to praise both for
being restrained to date and to urge both to await Maizitis'
findings before pronouncing on the case and Loskutovs' future.
SELDOWITZ