Ukraine’s Abyss of Despair

Alexander Mikhalevich was a hard-working coal miner humiliated by his inability to feed his family; Pavlo Lazarenko was a masterful politician who became Ukraine’s prime minister at 43.

The two men, 10 years and a world apart, never crossed paths. Mikhalevich spent his working life half a mile underground, hacking coal from the earth; Lazarenko lived in a mansion outside Kiev, spruced up with half a million dollars that Ukrainian prosecutors allege he stole from the government. Yet their lives, like opposite sides of the same coin, tell the story of Ukraine’s descent into corruption and poverty in the seven years since it gained independence.

Today, Mikhalevich is dead, burned alive when he set himself on fire to protest the government’s failure to pay miners their wages.

Lazarenko, indicted in Ukraine on charges he stole $2.3 million from the treasury, sits in jail in Northern California, accused of illegally entering the U.S.

While Mikhalevich’s death has been largely ignored, Lazarenko has become Ukraine’s public enemy No. 1. Prosecutors say they are searching in 38 countries for evidence of more than $500 million they allege the former politician stole or laundered. His foes say he personally controlled much of the nation’s economy and profited from a system of crony capitalism that, among other things, diverted money from the dying coal industry.

Lazarenko denies any wrongdoing and says he is being persecuted for trying to reform the economy. He has asked for political asylum in the U.S.

With the breakup of the Soviet Union in December 1991, Ukraine inherited a dysfunctional economy of worn-out factories, exhausted mines and mismanaged collective farms. Many of its 50 million people looked optimistically to the West as a model, hoping to build a market economy out of the ruins of socialism.

International financial institutions rushed to lend billions of dollars to Ukraine. The U.S. gave it more foreign aid each year than any country except Israel and Egypt. Nevertheless, its progress has been paralyzed by pervasive corruption and the difficulty of breaking free from Soviet traditions.

Ukraine’s economy has shrunk every year since independence. Its currency, the hryvna, has lost half its value in the past nine months alone. More than 40% of all trade takes place by barter. Falling tax revenue is not enough to finance the government, which is months behind in paying wages and pensions. Payoffs and bribes are commonplace.

Mikhalevich and Lazarenko, both products of the Soviet order, had no choice but to adapt to this new world of bandit capitalism. For Mikhalevich, the transformation of society meant poverty and despair; for Lazarenko, it meant power and riches beyond the dreams of most Ukrainians.

Mining Was Choice Work in Soviet Era

Every child in the Soviet Union was taught the legend of the Young Guards: the miners and students of Ukraine who resisted the German invasion during World War II. Betrayed in 1943, 71 young men and women were tortured and executed by the Nazis. Their bodies were dumped down a coal mine in Krasnodon, near the border with Russia.

After the Nazis’ defeat, a mine in Krasnodon was named after Nikolai P. Barakov, a Young Guard leader. It was here that Alexander Mikhalevich came to work in early 1989 at the age of 25.

Mikhalevich was at home among the miners, proud men taught to believe they were the cream of socialist society. Compared with other Soviet workers, their hours were short, their pay generous. They could vacation at the best resorts and retire after as few as 20 years in the mines.

Laboring in tunnels as deep as 2,540 feet, Mikhalevich won a reputation as a hard worker. Facing the risk of collapsing tunnels, explosions and fires, he broke up the coal with a hand-held pneumatic drill and shoveled it onto a conveyor belt. He fractured his leg in one accident and his collarbone in another, and inhaled toxic fumes while putting out a fire. The Barakova mine director rewarded him with a new apartment for his efforts.

“He was a Worker with a capital letter,” said his widow, Lyudmila. “He worked like a bull day and night. He worked on holidays. He kept on working. He didn’t miss a single day. Work was everything he had in his life.”

Under the Soviet system, coal mining was not designed to be a moneymaking operation. In Ukraine’s Donetsk Coal Basin--the Donbass, as it is called--the miners’ chief task was to feed Soviet industry and arms factories. Much of the coal was poor in quality and difficult to extract, and the Donbass required large state subsidies.

When Mikhalevich was 28, the Soviet Union broke apart and Ukraine gained its independence. It was a period of hope, and Mikhalevich--like most Ukrainians--believed life would soon get better.

Lack of Demand Weakened Industry

In the Donbass, the euphoria was short-lived. The cash-poor government began cutting back on mine subsidies. Demand for Donbass coal shrank and production declined. Money allocated for closing mines and creating new jobs was pocketed by corrupt mine directors and their state-owned holding companies. Miners worked for months without pay, surviving on food the mines provided.

As wage arrears mounted in the summer of 1996, about 200,000 Donbass miners went on strike. Lazarenko, only recently made prime minister, ended the walkout by pledging to give them their back pay, but the wage debts soon began mounting again.

With her husband unable to feed the family, Lyudmila went into business smuggling gasoline from Russia, where the price was lower. Every few days, she drove across the border to a town 12 miles away, filled plastic containers at a gas station and brought them back to Krasnodon, a town of 50,000, to sell by the roadside.

Tired of working for free, Mikhalevich quit the Barakova mine in May 1997. The mine paid him his back wages, and he went to work 60 miles away at a mine in the Ukrainian town of Rovenki, coming home on his days off.

That summer, hundreds of miners staged a protest in the city of Luhansk. One angry miner took a company director hostage, put a bottle of gasoline by his feet and threatened to set him on fire. The director’s associates produced the miners’ wages.

Soon, the Rovenki mine stopped paying its miners too. Mikhalevich was owed the equivalent of $2,000 when he quit in July 1998 and joined a protest of 130 Barakova miners camping out in a park in Luhansk across the street from the provincial governor’s office.

Once again, Mikhalevich had a perfect attendance record. He slept in his tent every night and rarely went home to Krasnodon, 30 miles away. The miners kept up the protest into December despite snow, freezing temperatures and a lack of progress in winning their money.

On the night of Dec. 13, while Lyudmila was across the border buying gasoline, Mikhalevich slipped home and left a letter under her pillow. Most likely, he took two bottles of gas from the stash she kept in their garage. Returning to Luhansk, he left another note in his tent.

“In order to get paid what I am owed, I have spent five months under the walls of the administration building, but have we proved anything to anyone?” he wrote. “I don’t understand what is happening and who is to blame for it.”

Shortly before 4 the next morning, he walked to the fountain across from the governor’s office, poured gasoline over his body and set himself on fire. The building guards tried to put out the flames, but they were too late. He lingered in the hospital for two weeks before dying Dec. 29. He was 35.

Mikhalevich’s friends and family say he never gave any sign he was contemplating suicide. But they knew he was depressed, unable to adjust to a society in which hard work went unrewarded and he could not support his family. In his letters, he apologized to his wife and children, Sergei, 19, Oksana, 15, and Alexei, 12.

“I don’t have any more patience or power left,” he wrote. “Maybe after this act is done the family will get its money back. . . . I regret only one thing: I will never get to see my grandchildren.”

Despite his death, no back wages materialized. The Barakova miners took up a small collection for the family and carried Mikhalevich’s coffin through the streets of Krasnodon. The only official to visit the widow demanded money for the funeral.

The family still lives in the apartment awarded by the Barakova mine. By day, Lyudmila, 40, tries to make a home for her children; by night, she smuggles gasoline. In her free moments, she is left to reread Alexander’s last words.

“Please forgive me for this, but I can’t take the humiliation and torture I have been going through,” he wrote. “I will never go back to work for free again. . . . I want to live, but I want to live a different life.”

Lazarenko Quickly Moved Up the Ranks

Perhaps Mikhalevich would have liked Pavlo Lazarenko’s life.

A Communist Party functionary and collective farm boss during Soviet times, Lazarenko proved to be a skillful manager under capitalism. After independence, he held top government jobs in Dnipropetrovsk province and won election in 1994 to the Supreme Council, the national parliament.

In 1995, he was named governor of Dnipropetrovsk. His talent for getting things done caught the eye of President Leonid D. Kuchma, who appointed him first deputy prime minister in September 1995 and prime minister the following May.

While in government, Lazarenko built a business empire trading in natural gas and other commodities. His main enterprise was supplying gas to factories in exchange for a share of their finished products, which his companies sold in Ukraine and abroad, said Paul Gully-Hart, one of his attorneys.

“Politics and business are never really separate in Ukraine,” said Gully-Hart, who represents Lazarenko in Switzerland. “It is almost impossible to do business without being in politics. . . . I know Mr. Lazarenko is no angel, but he is no worse than any other politician in that country.”

As prime minister, Lazarenko broadened his business influence through his power to grant exclusive licenses, export permits, state subsidies and government guarantees to his cronies, analysts said. He did not file required government statements disclosing what he owned, prosecutors said.

“Lazarenko managed to corner almost the entire energy market,” said political analyst Mikola V. Tomenko, director of the Institute of Politics, a think tank in Kiev, the Ukrainian capital. Lazarenko’s other business interests included alcohol production and sale, agriculture, steel production, banking and the media, Tomenko said.

Many business practices that are questionable elsewhere in the world are legal under Ukrainian law, and Lazarenko and his defenders deny that he engaged in any impropriety before or after becoming prime minister. Nevertheless, prosecutors are investigating whether he received kickbacks for dispensing favors.

While the natural gas trade was booming, the coal industry continued to deteriorate. In July 1996, Lazarenko was on his way to the city of Donetsk to negotiate with striking miners when a bomb exploded near his car. He blamed the attack on the miners. Others suggested that the remote-control bomb bore marks of a business rivalry.

In late June 1997, 14 months after he became prime minister, Lazarenko was fired. Kuchma’s office said the president wanted to speed up the pace of reform. Others said Kuchma was jealous of Lazarenko’s growing influence.

“Lazarenko was his creation, but this situation couldn’t last,” Tomenko said. “Lazarenko was not only a powerful politician but a powerful businessman, and he could challenge Kuchma for the presidency.”

Lazarenko kept his post in the Supreme Council, which gave him immunity from prosecution. As head of the Hromada party, he geared up to face Kuchma in the 1999 presidential elections.

On the night of Dec. 2, 1998, while attending a conference in France, Lazarenko tried to cross the border into Switzerland without a passport or visa. He showed border officials a Panamanian identity card he had used at least twice before to enter Switzerland, Gully-Hart said. This time, he was arrested.

Lazarenko told a Swiss magistrate that he was on his way to meet a political associate. Gully-Hart said Lazarenko used the Panamanian credential because he did not have time to get a required visa. Lazarenko was apparently unaware that Ukrainian General Prosecutor Mikhailo O. Potebenko had already asked Swiss authorities for help in investigating whether the former prime minister had improperly funneled money into Swiss banks.

Based on its own investigation, the Swiss government charged Lazarenko with laundering $2.7 million and froze bank accounts allegedly controlled by his associates. Swiss media reports said the accounts contained $20 million. On Dec. 18--four days after Mikhalevich set himself on fire--Lazarenko was released from jail in Geneva on $3-million bail. Gully-Hart said the money was posted by a political supporter who wished to remain anonymous.

Embezzlement, Laundering Alleged

Soon, allegations against Lazarenko began spilling out in Ukraine.

Prosecutors formally charged that as a provincial official in 1992 and 1993 he embezzled $1.2 million from a state farm. As prime minister in 1997, they alleged, he embezzled $891,000 from a program to build housing for Cabinet ministers under a contract with a Panamanian firm. They also accused him of diverting $500,000 from an environmental program and using it to landscape the grounds of his government-owned estate. And they alleged that he laundered $3 million through Swiss banks.

Deputy General Prosecutor Mykola S. Obikhod said he suspects Lazarenko stole or laundered more than $500 million from the government in what he called the biggest corruption case in the former Soviet Union.

Others also came forward to allege that the former prime minister had been involved in various scams. The late Vyacheslav M. Chornovil, head of the Ukrainian Popular Movement faction in parliament, accused Lazarenko of presiding over a system that allowed mine directors to steal or squander hundreds of millions of dollars a year in subsidies, with kickbacks going to officials higher up in the government.

“All these things would hardly have been possible without Lazarenko’s connivance,” Chornovil said in an interview shortly before his death March 25 in a car crash. Prosecutors said they were looking into Lazarenko’s alleged role in the disappearance of mine funds.

As the charges mounted, Potebenko, a Kuchma appointee, sought to remove Lazarenko’s parliamentary immunity. In return, Lazarenko threatened to expose “secrets” of Kuchma’s alleged business dealings, including bank account numbers he claimed belonged to the president’s associates.

Kuchma denied Lazarenko had been unfairly singled out, noting that his former right-hand man “travels wherever he wants and says what he wants.”

On Feb. 17, as parliament prepared to decide his fate, Lazarenko sent word from outside the country that he was too ill to attend. Despite opposition from his Hromada faction, the Supreme Council stripped him of his immunity.

The next day, the prosecutor issued a warrant for his arrest on charges of embezzlement and abuse of office, punishable by as much as 15 years in prison. Ukraine asked Interpol to distribute a worldwide notice seeking his arrest.

On Feb. 19, Lazarenko arrived in New York from Athens. U.S. immigration officials concluded that he did not have a proper visa and detained him. He requested political asylum, saying he was the target of a conspiracy by Ukraine and Switzerland and feared for his life if he was sent home. He hired two California law firms and a Boston public relations firm to make his case.

“The warrant for my arrest issued by Ukrainian prosecutors is totally without substance,” Lazarenko said in a March 4 statement. “I am a victim of political persecution by the government of President Leonid Kuchma. Criminal investigations in Ukraine and Switzerland are part of a systematic, politically motivated plot to repress opposition. I will not be intimidated by such tactics and remain the official presidential candidate of the Hromada party for the October 1999 elections.”

Under Ukraine’s Soviet-style legal system, the general prosecutor has enormous powers. An indictment is tantamount to a finding of guilt and is rarely overturned by a judge. Lazarenko’s defenders charge that Kuchma, through his influence over the prosecutor, is making Lazarenko a scapegoat for his own failures.

“There is no rule of law in Ukraine,” said Gully-Hart, the Swiss attorney. “The main purpose of the general prosecutor’s office is to single out opponents of Mr. Kuchma and pin them down. None of the accusations against Mr. Lazarenko would stand up under full scrutiny in open court.”

Lazarenko is being held in U.S. custody in Dublin, Calif., near San Francisco, awaiting a hearing Monday on his asylum request. Ukrainian prosecutors have given the U.S. details of the charges against Lazarenko and asked for his return, although there is no extradition treaty between the two countries.

In Kiev, Obikhod is confident that the former prime minister’s world tour will eventually end and that he will be hauled into court to face charges. “Sooner or later,” he said, “Lazarenko will end up in Ukraine, and then his future will depend entirely on the justice system of this country.”

Workers Cut Their Arms in Protest

By mid-January, Mikhalevich was buried and Lazarenko had left Switzerland on bail, but the miners in Krasnodon were still waiting for wages they had not seen in months.

At Barakova, a desperate group of miners began sitting in a tunnel, refusing either to work or leave. Their fellow miners stepped over them each day on their way to dig coal.

Ignored by the mine director for 32 days, they threatened to slash their wrists. On Feb. 18, nine miners cut their arms, drawing blood. But still the director did not give in. The next day, they threatened to slash their wrists, one miner every half an hour. The first to cut himself was Alexander Umsky, who sliced his forearm with a knife and opened three veins before bandaging himself. The director capitulated.

For the miners it was a rare victory. Umsky said he got his entire six months’ back pay--about $620--although he conceded that he never intended to follow Mikhalevich’s example. “It was an act of protest,” he said, “not an act of suicide.”

To miners like Umsky, Lazarenko has become the symbol of all that has gone wrong in Ukraine since independence. The government was plundered by a handful of wealthy, well-connected insiders, they say, and they call Lazarenko the worst of them all. They hope justice will be served in the United States.

“How can the U.S. give him political asylum when he is the top scoundrel of Ukraine?” Umsky asked. “Let’s hope the truth prevails and Lazarenko gets his due. We would like to think that not everything in this world can be bought and sold.”