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Cablegate: Estonia's Land Swap Scandal

VZCZCXRO3740
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHTL #0003 0030924
ZNR UUUUU ZZH
R 030924Z JAN 08
FM AMEMBASSY TALLINN
TO RUEHC/SECSTATE WASHDC 0415
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS TALLINN 000003

SIPDIS

SIPDIS
SENSITIVE

DEPARTMENT FOR EUR/NB

E.O. 12958: N/A
TAGS: ECON KCOR PREL EN
SUBJECT: ESTONIA'S LAND SWAP SCANDAL

REF: 07 TALLINN 435

1. (SBU) SUMMARY: A Security Police (KAPO) investigation has
implicated several key Estonian politicians and business leaders
in a high-profile corruption case. The "Land Swap Scandal"
alleges the ex-head of Estonia's Land Board orchestrated the
exchange of environmentally-protected state land for less
valuable private land in exchange for bribes. KAPO also named
two former GOE ministers as suspects in the case. The
investigation could go several more months before coming to
trial, but legislative remedies are already underway. While the
case has hurt the once-strong People's Party, there is little
chance it will significantly tarnish Estonia's overall
reputation for transparency and a pro-business environment. END
SUMMARY.

2. (U) In October 2006, KAPO named Kalev Kangur, the former head
of Estonia's Land Board, and three prominent businessmen as
suspects in an alleged bribery scheme. In a case going back to
August 2005, KAPO claimed that owners of private land exchanged
their property for more valuable, public land by exploiting
their ties to Kangur. Prosecutors have said the swaps made by
the Land Board were often unfavorable to the state, and they
allege that the landowners effectively traded unusable rural
plots for prime urban real estate.

3. (U) Kangur is accused of masterminding the scheme of swaps,
and directing the acquisition of plots throughout Estonia, using
inside information about which lands were to be placed under
conservation status. Kangur allegedly used front companies to
exchange or resell properties received from the state to buyers
he selected. He also supposedly influenced appraisers to value
plots unfavorably to the state, and drafted land swap
resolutions for then-Minister of Environment Villu Reiljan to
approve. Reiljan -- a sitting MP and ex-chairman of the
opposition People's Union party -- resigned last year from the
parliamentary committee that supervises the activity of security
agencies to avoid conflict of interest during the investigation.

The Case Widens
---------------

4. (U) In October 2007, KAPO formally named both Reiljan and
former Minister of Agriculture Ester Tuiksoo as additional
suspects in the case. Both are accused of approving the deals
in exchange for financial and material gratuities from those who
benefited from the swaps. KAPO also named two more businessmen
- building entrepreneur Toomas Annus, and car dealer Andres
Sarri - as suspects, bringing the total to nine. The
investigation is expected to continue for some time.

5. (U) On November 5, the GOE's coalition council approved a
draft proposal by current Minister of Environment Jaanus
Tamkivi's to amend the Nature Conservation law. The following
day, the ministry sent the proposal to other ministries for
review. The proposed amendments would end the practice of
exchanging nature conservancy land for state-owned properties
and replace it with a more transparent system for purchasing
land at market prices. Minister Tamkivi has said he believes
the new system would not only be more fair, but would also save
the state the USD 1400 processing costs it currently pays for
each land deal. (Note: Presently the Land Board is processing
over 500 land swap applications. End Note.) The Cabinet and
then Parliament will have to approve the proposed changes to the
law.

Comment
-------

6. (SBU) Estonia has a reputation as a good place to do business
(reftel). We do not believe the Land Swap scandal will have a
significant impact on investor confidence in the real estate
sector, or Estonia's wider image abroad. Politically, however,
the case has already done some damage. Support for the People's
Union party, a member of the 2005-2007 governing coalition and
one of six parties in the current parliament, has been declining
since the defeat of its candidate, former President Arnold
Ruutel, for re-election in fall of 2006. With the alleged
involvement of Reiljan and Tuiksoo, the scandal has become
closely associated with People's Union. According to recent
polls, if elections were held today, the party would fail to get
enough votes to qualify for any seats in the Parliament.

DECKER

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