Odessa is Ukraine's Real Battleground

Article published on June 23, 2014
Article published on June 23, 2014

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.

Anti-anti-Russ­ian back­lash?

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.