07TBILISI2978, GEORGIAN INVESTIGATION OF PATARKATSISHVILI

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Reference ID Created Released Classification Origin
07TBILISI2978 2007-11-28 14:24 2011-08-30 01:44 CONFIDENTIAL Embassy Tbilisi

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) 
 
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 &#x000A
;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

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