Court documents allege 'corrupt' Kazakhstan regime's link to FTSE firms

presidential-palace-astan-006President has seized control of nation's investments, claims politician facing trial in England

The multibillion-dollar sovereign wealth fund of Kazakhstan, which holds stakes in several London-listed companies and counts former BAE boss Sir Richard Evans among its directors, has forcibly taken control of assets and is being run as a personal fiefdom of the country's government, court documents claim.

The accusations against Samruk-Kazyna – the fund that acquired an 11% stake in FTSE-100-listed mining company Kazakhmys in October and also has interests in other FTSE-100 companies such as the natural resources group ENRC – are being made by Mukhtar Ablyazov, a former head of the now state-owned Kazakh bank BTA and a political opponent of Kazakhstan's president, Nursultan Nazarbayev.

Ablyazov is in exile in Britain and is awaiting a hearing in London's high court following claims he embezzled $2bn (£1.29bn) from BTA. He insists that the allegations are politically motivated and that the Kazakh government illegally took control of the bank.

[This updated was inserted on 3 December 2010: However, the judge hearing the case, Mr Justice Teare, has ruled that Ablyazov's assets should be placed into receivership because he "cannot be trusted" not to dissipate assets which the bank claims are not his. The judge's finding followed a hearing in mid-2010, in advance of the eventual trial.

[He has also ruled that Ablyazov, who has settled in an affluent part of north London with his wife and three youngest children, should continue to have his passport retained by the court to prevent him leaving the country.

[Mr Justice Teare said: "Although Mr. Ablyazov has stated that he will obey the orders of this court that statement has to be considered in the light of his conduct in this action. Consideration of his conduct with regard to disclosure of his assets in August/September 2009 ... has left me unable to trust him not to deal with his assets in breach of the freezing order."] [See footnote]

Ablyazov's defence papers argue that the takeover of BTA by Samruk-Kazyna in February 2009 was "the culmination of the campaign by the president [Nazarbayev] and his allies to wrest ownership and control of [BTA] from [Ablyazov]".

They continue: "Samruk-Kazyna is another instrument used by the president to advance his personal interests, including the domination of the economic (as well as political) spheres of Kazakhstan. Samruk-Kazyna holds all major state industrial enterprises, including, inter alia, KazMunaiGaz (the state oil production company), KazTransOil (the state oil and gas transportation company), Kazakhtelecom (the state telecommunications company), Kazakhstan Temir Zholy (the state railway company) and financial assets (including interests in [BTA] and Alliance Bank). Thus Samruk-Kazyna and its subsidiaries are effectively controlled by the president's son-in-law, Timur Kulibayev, Samruk-Kazyna's deputy chief executive officer and chairman of the most important entities under the ownership umbrella of Samruk-Kazyna."

The accusations have emerged in the week Kazakhstan hosts the Organisation for Security and Co-operation in Europe (OSCE) summit, which began today and is being attended by former US president Bill Clinton, the German chancellor Angela Merkel, and Nick Clegg, the deputy prime minister.

The charges also coincide with the publication of embarrassing details of the dealings of Prince Andrew, Britain's special representative for international trade and investment, with Kulibayev via the US embassy cables leaked by WikiLeaks. One states that "Timur Kulibayev is ... the ultimate controller of 90% of the economy of Kazakhstan". Another, from 2008, says: "Richard Evans ... told the ambassador that Kulibayev was the one real businessman he had met in the entire Samruk structure."

In an interview with the Guardian, Ablyazov said: "For a long time the president was asking me to transfer 50% of the bank to him, free of charge. Requests were followed by threats that if I did not do it I would be imprisoned and they would take away my business. This situation dragged on for years. Finally, using the excuse of the financial crisis, the president took over. He kept telling me directly he was afraid of me and that I would seize power. 'If I control your business, I control you,' he said."

After co-founding an opposition party, Ablyazov was sentenced to six years in prison on corruption charges in 2002 but says he was pardoned in return for staying out of politics. He said: "State assets are being transferred for nominal values to companies controlled by the president. Dividends are transferred among the president's companies. At a later stage the asset is sold back to the state to Samruk-Kazyna."

Ablyazov also claims that the ruling family owns and controls an important part of London-listed companies, such as Kazakhmys, the copper and gold miner, which now has a market value of more than £7bn.

While Ablyazov is an avowed political opponent of Nazarbayev, as well as a figure facing embezzlement accusations, he does have direct experience of the country's regime as a former minister of energy, industry and trade. While in government, he used a privatisation auction to acquire the state-owned bank that was to become BTA.

Ablyazov is also far from the only person to question the links between Nazarbayev, Kulibayev and Kazakhstan's big corporations, or to raise the subject of corruption within the country.

In 2003, a US oil consultant, James Giffen, was indicted on federal bribery charges that alleged he paid $78m to Nazarbayev and former prime minister Nurlan Balgimbayev. Although most charges were dropped, the issue of corruption in Kazakhstan raised during the case – inevitably dubbed "Kazakhgate" – has refused to die since, despite a string of the country's companies listing on the London Stock Exchange.

At the beginning of his 2008 book, The Godfather-in-Law, Nazarbayev's exiled former son-in-law, Rakhat Aliyev, claims he secretly recorded his final conversation with the president before fleeing the country in 2007. He alleges that Nazarbayev said: "[Kazakhmys] is a company that works for me and does whatever I want." Later in the conversation, Aliyev says Nazarbayev qualified his statement: "Kazakhmys – I don't have anything in particular to do with it, but I tell you they are prepared to do anything."

A spokesman for the company said: "Kazakhmys is run by its management and board. Mr Nazarbayev is not a shareholder and neither does he sit on the board. Samruk-Kazyna, the sovereign wealth fund of Kazakhstan, is a significant shareholder in Kazakhmys, and as one of the largest corporations in Kazakhstan, Kazakhmys maintains a strong dialogue with the Kazakh government."

In July of this yearLast July, a report by the natural resources campaign group Global Witness stated: "Nazarbayev's alleged involvement in Kazakhgate and the wealth and power of Kulibayev are just two examples which suggest that Kazakhstan is a 'kleptocracy', run by and for the benefit of the ruling family and its close associates. This poses a definite risk for companies with operations in Kazakhstan. However, Kazakhmys's listing prospectus does not address these issues regarding Kazakhstan."

A 2009 World Bank survey found that 55% of companies in Kazakhstan said they expected to give gifts to secure a government contract, while 44% said corruption was a "major constraint" to conducting business.

However, such inconveniences do not appear to be putting off British firms. Sir Andrew Cahn, chief executive of UK Trade & Investment, which promotes British exporters overseas, has accompanied Clegg on this week's visit to Kazakhstan. UKTI says Kazakhstan "is becoming an increasingly valuable trading partner for the UK, with exports to the country reaching £225m in 2009".

More than 100 companies in Kazakhstan are fully UK-owned or have some kind of British connection. These include household names such as Shell, HSBC and BG Group, a company that met Prince Andrew on four occasions in a six-month period of this year. Prince Andrew's close friend, the socialite and businesswoman Goga Ashkenazi, has a son with Kulibayev. Kulibayev bought the Duke of York's Sunninghill Park home in 2007 for £15m – £3m above the asking price.

Samruk-Kazyna and the Kazakhstan embassy did not return the Guardian's phone calls and emails.

• This article was amended on 3 December 2010. The original omitted reference to a high court ruling concerning Mukhtar Ablyazov's assets and passport. The article has been updated to rectify this. It also said that accusations made by Mukhtar Ablyazov had emerged in the week that Kazakhstan is hosting an OECD summit. This has been deleted, as the accusations emerged prior to the summit. An item covering omission of the court ruling will appear soon in the Guardian's Corrections and clarifications column.

The players

Nursultan Nazarbayev

President of Kazakhstan since the Soviet Union collapsed and the country became independent in 1991. Like many other modern central Asian leaders, Nazarbayev started his political career as a Soviet apparatchik. Elected as president three times, never with less than 81% of the vote.

Mukhtar Ablyazov

A former banker and co-founder of the Democratic Choice of Kazakhstan, a political movement that opposes the Nazarbayev regime. A warrant for Ablyazov's arrest was issued in Kazakhstan on charges of embezzling funds at BTA Bank. He fled the country and is exiled in London.

Timur Kulibayev

A businessman and son-in-law of Nazarbayev. He is currently the deputy head of the state investment company, Samruk-Kazyna, as well as holding positions on the boards of many of its assets. Worth $1.1bn, according to Forbes magazine.

Goga Ashkenazi

Socialite friend of Prince Andrew, who is relaunching herself as a businesswoman. She has a child with Kulibayev, whom she admits puts business her way.


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