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RUEHVEN/USMISSION USOSCE 1988

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 001348 

SIPDIS 

SIPDIS 

STATE FOR SCA/CEN, EEB 
AID/W FOR EE/AA (BOB WALLIN) 
PLEASE PASS TO USTDA DAN STEIN 

E.O. 12958: DECL: 12/14/2017 
TAGS: EIND ETRD PGOV PREL TX
SUBJECT: TURKMENISTAN CORRUPTION: WHAT HAPPENS IN 
ASHGABAT, STAYS IN ASHGABAT 

REF: A. ASHGABAT 1335 
¶B. ASHGABAT 1047 

Classified By: XXXXXXXXXXXXX for reasons 1.4 (B) and (D). 

¶1. (C) SUMMARY: Corruption and nepotism remain problems in 
Turkmenistan, and Turkish firms and Bouygues have done 
particularly well in the lucrative construction industry 
because they have mastered the business environment here. 
Bouygues CEO Martin Bouygues' close and direct relationship 
to the president of Turkmenistan is an open secret. A 
well-connected member of Turkmenistan's international 
diplomatic community alleged that the price for introductions 
to the president have risen from ten to 15 percent since 
Niyazov's death. He also alleged that construction contract 
prices are so high because construction companies must add 20 
or 30 percent to their bids just to cover bribes -- and that 
President Berdimuhamedov is engaging in more construction 
contracts in order to amass more personal wealth, of which 
Avaza (Ref. A) is a part. With all agreeing that corruption 
is as much a part of Turkmenistan's business environment as 
ever, the need to compete with firms not bond by U.S. 
anti-corruption laws adds a new layer of complexity and 
uncertainty for U.S. firms wishing to do business here. END 
SUMMARY. 

CONSTRUCTION INDUSTRY: MOST VISIBLY CORRUPT INDUSTRY 

¶2. (C) At a dinner on December 4, a group of ambassadors 
lamented that the Government of Turkmenistan awards 
construction contracts only to Turkish firms, and XXXXXXXXXXXX
 alluded to the "special" arrangement that French construction firm Bouygues 
holds with Turkmenistan's government. When questioned 
directly about the veracity of the rumor that Siemens is 
encouraging the government of Turkmenistan on the idea of 
installing one main satellite dish per building, XXXXXXXXXXXX
 acknowledged Siemens' corrupt business practices. On December 5,
 XXXXXXXXXXXX gave a wide-ranging account of his views 
of corruption in Turkmenistan. The source said that 
"Bouygues has not done $1.2 billion in work over the past 
years only on the basis of the quality of their work," and 
added that XXXXXXXXXXXX's comment about Bouygues probably 
was in reference to the direct, personal relationship that 
CEO Martin Bouygues has had with the former and current heads 
of state of Turkmenistan. 

PRICE HIKE FOR PRESIDENTIAL INTRODUCTIONS 

¶3. (C) XXXXXXXXXXXX recently estimated that, based on 
current rumors, bribes to senior officials for meetings with 
the president have risen from ten percent under former 
President Niyazov to 15 percent under President 
Berdimuhamedov. XXXXXXXXXXXX emphasized, 
however, that bribing is a private affair, which only very 
few people in any given firm aware of it. Whatever happens 
between Bouygues and Turkmenistan's president -- former or 
current -- in all likelihood stays between them. 

BRIBES AREN'T FREE -- SOMEONE PAYS 

¶4. (C) XXXXXXXXXXXX also gave one 
explanation for what seem to be very high construction 
project costs in Turkmenistan. Alleging that the Government 
of Turkmenistan owes everyone money, Turkish construction 
firms and Bouygues begin work only after receiving a down 
payment. (NOTE: According to the source, John Deere 
distributor IPC just started taking unconfirmed letters of 
credit. END NOTE.) Because it is very likely that the 
Government of Turkmenistan won't pay the last ten percent, 

ASHGABAT 00001348 002 OF 003 


companies routinely add an additional ten percent to the 
final negotiated price. Because corruption runs all the way 
down to subcontractors, construction companies usually tack 
on another 20 or 30 percent to the project price to make up 
for the bribes that the various parties have to pay along the 
way. 

TEXTILE MINISTRY DETERMINED TURKISH MANAGERS OVERCHARGED 

¶5. (C) The source said that the Ministry of Textiles became 
suspicious and began checking on the actual prices of spare 
parts bought by Turkish co-managers at joint-venture 
factories. Ministry officials verified that the Turkish 
partners grossly overcharged the Ministry for parts -- but as 
the source explained, the managers "have" to add on 
surcharges/bribes anywhere they can, including spare parts, 
because they have to pay off Ministry officials to stay in 
partnership at the factory. (COMMENT: This story about the 
Ministry of Textiles seems to be consistent with the rumor 
that Ahmet Chalik may have played a significant role in the 
imprisonment of Minister of Textiles Jemal Goklenova under 
President Niyazov because she favored eliminating Turkish 
managers from the textile factories in order to let Turkmen 
manage the factories themselves (Ref. B). END COMMENT.) 

MORE RUMORS ON THE BIG TURKISH CONSTRUCTION COMPANIES 

¶6. (C) Formerly prominent Turkish construction firms such as 
Nursel, headed by Ibrahim Kollek, are out of favor. Rumors 
of a falling out between Kollek and the Government of 
Turkmenistan abound in Ashgabat, as well as a rumor that 
Kollek filed a lawsuit against the government of Turkmenistan 
in Turkey. 

PRESIDENTIAL CORRUPTION... 

¶7. (C) According to the source, there is an understanding 
that higher-up officials should dole out a portion of these 
bribes to their minions, and former President Niyazov 
reportedly cracked down on those taking bribes who didn't 
share the wealth with others down the food chain. From all 
appearances, President Berdimuhamedov is engaging in the same 
behavior, as Turkmenistan watchers and experts such as this 
source have the impression that Berdimuhamedov's desire to 
accumulate wealth is the motivating factor behind the many 
large contracts the government engages in. Also, rumors 
persist that provincial governors have to pay a bribe of 
$100,000 for their jobs. 

...PERHAPS AN EXPLANATION FOR THE MYSTERY THAT IS AVAZA? 

¶8. (C) The source mentioned the Avaza Tourism Zone (Ref. A) 
as an example of corruption -- and lack of any understanding 
of infrastructure development -- in Turkmenistan. Depending 
on the moment, the project plays the role of a free economic 
zone, a touristic zone, or a port development project. As 
the source pointed out, in a properly organized port 
development project, studies on traffic and passenger flows 
and architects' studies should precede work, and planners 
would allocate approximately ten percent of the entire budget 
to pay these technical experts before work began. As far as 
anyone can tell, none of these studies have been done or 
planned for in the Avaza budget, but planners expect to spend 
$2.8 billion to upgrade the completely dilapidated jetties 
and wharfs at the port alone -- including $212 million for a 
seven-kilometer canal alone. 

THE "RIGHT SORT" OF COMPANY 

¶9. (C) The source said that a company offered one of his 
contacts a 2.5% commission for introducing the "right sort" 

ASHGABAT 00001348 003 OF 003 


of European contractor -- i.e., a contractor with a sterling 
reputation -- with the ability to disguise bribes from 
auditors. The source refused to give any sort of identifying 
information about his contact, but said that "people who 
studied in Moscow have the right contacts," adding that "not 
everyone has access" (to Russians in the know and who have 
ties to Europe.) 

WHERE IS THE MONEY KEPT? NO ONE KNOWS. 

¶10. (C) All of this being said, no one knows the precise 
mechanics of corruption due to anti-money laundering 
procedures currently in place in the United States and 
European Union, which require various proofs of identity and 
residency in order to open a legitimate bank account. 
However, the source said that XXXXXXXXXXXX
-- a former deputy minister -- has an account at Citibank in New York. 
Some also suspect that, despite the Baltic countries' 
ascension to the EU, Baltic banks are not following 
anti-money laundering procedures, since many Turkmen citizens 
have Baltic bank accounts. 

¶11. (C) COMMENT: Although Turkmenistan is in a period of 
reform, corruption is here to stay, at least for the 
foreseeable future. Nevertheless, this aspect of doing 
business in Turkmenistan is not dissuading others from 
wanting to enter the market, since there still seems to be a 
common acceptance that bribes are an integral part of the 
bidding and pricing system. But for U.S. firms wishing to 
enter Turkmenistan's business environment, the need to 
compete with firms not bound by U.S. anti-corruption laws 
adds a new layer of complexity and uncertainty. END COMMENT. 
XXXXXXXXXX