31 августа 2023
Paolo Sorbello and Dmitriy Mazorenko. Photo by Zhanara Karimova

Asset Return Could Become an Opaque and Expensive Venture in Kazakhstan

The government says the amount of returned assets is growing but fails to produce a comprehensive list

Asset Return Could Become an Opaque and Expensive Venture in Kazakhstan

In February 2022, in reaction to the protests in Kazakhstan (also known as Qandy Qantar), President Kassym-Jomart Tokayev ordered the return of illegally-withdrawn assets. The newly-adopted law that should have facilitated asset return, however, could make the process more opaque and selective, experts say.

Tokayev had said that asset return would have reversed the process of concentration of the country’s resources into the hands of a small elite, thus improving competition and the overall economic situation in the country.

The government had already formed a Commission to return domestic assets and a Commission to return foreign assets, in March and June 2022 respectively. The General Prosecutor’s Office was put in charge of these commissions.

Now, a new law signed by Tokayev on July 12 would lead to the formation of yet another structure to manage the billions that the government plans to return to the state coffers.

These assets will then be allocated to a special state fund, managed by yet another commission.

While the government builds up the legal and institutional infrastructure, the General Prosecutor has often told the press about its achievements in returning assets.

As of July 1, the General Prosecutor’s Office told Vlast it had recovered 860 billion tenge (equivalent to around $1.9 billion), “including [at least] $589 million from foreign countries”.

But the General Prosecutor’s Office said it could not make public all of the names of the people who held these assets and the specific accounts, factories, or plots of land that were returned to the state, pending the conclusion of the investigations.

It has only named so far a few members of former President Nursultan Nazarbayev’s family: Bolat Nazarbayev, Kairat Satybaldy, Timur Kulibayev, Kairat Boranbayev, and Kairat Sharipbayev.

The lack of detail is in direct contrast with Tokayev’s pledge to make the process transparent, in contrast to the opaque deals that led to the illegal withdrawal of these funds and assets in the first place. And experts have argued that the way the new law is written, it would open new avenues for opaque and selective asset grabbing.

Targeting the Rich

The prospective Commission, according to the law, will hold a registry of names of people who allegedly illegally withdrew assets worth more than $100 million. Once their names are logged in the registry, they could be subjected to investigation for a period of up to one year. During such time, the government can freeze the assets, pending a final judgment. At that point, should nothing against them be found, they will be struck off from the list and their frozen assets returned.

The General Prosecutor’s Office and the government said that targeting potential illegally-withdrawn assets worth more than $100 million is a strategy aimed at disintegrating the oligopoly that was formed throughout the past three decades in the country.

Answering a question in parliament, the deputy prosecutor general said that for violations worth less than $100 million, the justice system would operate through existing legislation.

Thomas Mayne, research fellow at the University of Oxford focusing on Central Asia and anti-corruption told Vlast in an interview that asset recovery could be a positive development if done right.

“We routinely see autocrats and dictators push for anti-corruption drives. These are mostly populist moves. And it looks especially good if you're getting the assets from overseas and bringing them back to the home country,” Mayne said.

But the devil is in the details, says economist Kassymkhan Kapparov.

“So far, within the framework of the law, the Ministry of finance has only created one account, but released no details. As for the management company, it is also not clear who will manage it and how.”

Instead of a genuine attempt to return all assets, Mayne said this could be a targeted attempt to weaken businessmen close to Nazarbayev, including his family members.

“I think anybody with over $100 million in Kazakhstan would have to be questioned as to how that money was made. At the same time, there is a danger of turning this process into the arbitrary detention of wealth of people who do not align politically with Tokayev,” Mayne said.

“There's a danger that this is essentially score settling, or an attempt to further dismantle the power of the Nazarbayev clique.”

Writing a Bad Law

Almaty-based lawyer Bakhyt Tukulov told Vlast that the law was crafted in a peculiar way, allowing room for interpretation.

“The law was not written in a way familiar to our tradition. It is written in a rather Anglo-Saxon way. And this means that there is a wide space for discretion in court,” Tukulov said.

With the new law, the owners of the assets questioned by the Commission would have one year to demonstrate their legitimate origin, that is, the opposite of the traditional presumption of innocence granted by the judiciary.

By the letter of the law, this discretion could also be applied to the “selection process” by the Commission of which assets to freeze, which would be transferred into government management pending a civil trial.

Tukulov said this is one of the major changes.

“If frozen assets can currently only be returned after a trial, the new law will allow this process to start even before the trial. Should the defendant fail to prove that they earned their assets legally, the property will be taken away.”

This way, the state unloads the burden of investigating and proving the origin of the assets onto the defendant and easing the process of assets return.

Kapparov finds this solution potentially dangerous, given the reluctance of the General Prosecutor in publishing details about the targeted assets.

“If there is no transparency, it will simply turn out to be a witch hunt,” Kapparov said.

And while the law is open to interpretation and selective justice, the rule of law continues to be weak, according to Tukulov.

“I doubt that the law will be applied evenly, because our judges are accustomed to following orders from above. This law can turn into some kind of instrument [to execute orders] from above,” he said.

Historical Precedent

Kazakhstan has a history of recovering illegally-withdrawn assets, although for a fairly smaller sum.

In 1999, the Swiss government froze a bank account in which the Interpol said it had found the proceeds of a series of bribes paid to officials in Kazakhstan. The scandal, known as Kazakhgate, ultimately led to an international collaboration between Switzerland, the US, and Kazakhstan that led to the creation of a foundation in Kazakhstan through which to return the money.

When it was seized, the account held $84 million, which grew with interest to $115 million by 2008, when the BOTA foundation was created and started its charitable activities.

Yevgeniy Zhovtis, a human rights lawyer who sat at the supervisory board of BOTA, said the conditions at the time were different.

“This money was not seized, therefore not liable to claims or litigation. When you deal with oligarchs, the situation could be more nuanced,” Zhovtis told Vlast.

The money, which had been paid to Kazakhstani officials, would not pass by the hands of the government, the parties agreed.

“Kazakhstan was labeled a corrupt state, and therefore the condition was that the government should not have access to these funds.”

It was the BOTA foundation that then proposed how to allocate the money, under the supervision of World Bank consultants and the final say of the three governments.

“The system of transparency and independent control was powerfully built. In essence, several entities exercised control over the freezing and the returning of the assets: the US justice system, the World Bank, and the board of the fund,” Zhovtis said.

Though necessary, this oversight was expensive, Mayne said.

“One criticism of BOTA was that a lot of money was spent on [the honoraria of] western supervisors, which is I think a fair criticism.”

Without a zealous supervision, the assets could just fall into the same hands that misappropriated them in the first place.

Mayne was a co-author of a study of another case of asset return, the so-called “Kazakhstan II”.

A Swiss court in 2011 froze $48.8 million in assets, following an investigation into money laundering. Because the investigation found that the assets ultimately belonged to the people of Kazakhstan, the Swiss authorities decided to return these assets to finance projects in the areas of youth policy and energy efficiency.

Opposite to the BOTA experience, the Kazakhstan II money was returned to the government under the stewardship of the World Bank.

As Mayne’s research shows, however, around half the returned assets were allocated to the youth fraction of the ruling party.

A coalition of NGOs monitoring the UN Convention against Corruption (UNCAC) laid out a number of principles to abide by when dealing with asset return. One of them is transparency.

“Transparency as to the volume and value of ongoing cases would significantly help build trust in the process,” the coalition wrote in their 2017 recommendations.

Creating an LLP to Manage State Funds

State money is ultimately the people’s money. Tokayev said the recovered funds will have to be used for the well-being of the population, that is the building of schools, hospitals and other high-tech enterprises and social projects.

Instead of channeling the money through an independent foundation, such as BOTA, the government chose to create a limited liability company (LLP) within the special fund under the ministry of finance, that will manage the recovered assets.

The ministries refused to disclose any details of how these assets will be managed. The ministry of finance told Vlast they are still “developing a procedure for disposing of assets transferred to the management company.”

The only aspect that has been decided is that the ministry of economy will determine the criteria and carry out the selection procedure for social projects. A commission in charge of state budget spending will have the final say on the expenditure, the ministry told Vlast.

The ministry of justice told Vlast that the new law mandates that the ministry of finance publishes a yearly detailed report about how the recovered funds were spent.

But just how will the government assess the effective spending of these funds? The ministry of economy told Vlast that each project financed through returned assets will undergo a comprehensive examination.

Given the history of opaque reports from the ministry of finance, Kapparov argued that the public would probably be left unaware of how many schools and social facilities will be built with returned assets. When logged into the budget, these assets are unlikely to be highlighted in a separate line, Kapparov said.

“It would be different if these assets were sent to the National Fund. Then we could see how much money came there and how much was spent in the end,” the economist added.

“Under the current political system, I see no point in returning assets to the state. It's completely useless. The system itself is built in such a way that the money will be spent inefficiently in the budget,” Zhovtis said.

A Not-so-Airtight Plan

The recovery of illegally withdrawn assets is one side of the coin in Tokayev’s policy to “demonopolize the economy”. He partly blamed the concentration of wealth into the hands of a few dozen businessmen for the popular discontent that led to mass protests in January 2022.

The protests were subsequently repressed in what became known as Qandy Qantar (Kazakh for “Bloody January”). At least 238 people were killed in the most violent days of clashes.

Since Qandy Qantar, the president has publicly spoken about the need to increase competition.

“Since the beginning of last year, work has been underway to demonopolize the economy. This is not an easy process, and it requires commitment and professionalism on the part of the government,” Tokayev said before parliament in March 2023.

“Until economic resources cease to be concentrated in the hands of a narrow circle of people and until fair competition is established.” Such is the commitment, as related to Vlast, of the Interdepartmental Commission on Combating the Illegal Concentration of Economic Resources, a mouthful of a government agency that was established in 2022 under the supervision of the Prime Minister.

That the most widely-publicized instrument used for the demonopolization of the economy is a law on asset return is telling of the government’s “commitment”.

According to Kapparov, the main beneficiary of this law and the entire asset recovery process will be big business.

“[Big business] can write off the unprofitable portions of socially relevant projects. Capital investments which will fall onto the government’s shoulders. Then, these projects could be privatized and assigned to certain entrepreneurs already with a stable cash flow,” the economist explained.

He also noted privatization processes in Kazakhstan have always been opaque. Some public assets have already been privatized during Tokayev’s presidency and the expert notes that this non-transparent history could repeat.

Anti-corruption researcher Mayne added that, in countries like Kazakhstan, the asset recovery process could turn into an opaque money grab.

“We know that asset recovery is very complex and difficult and often the people that misappropriate the money are those people who have been in power. Therefore, the line between legality and illegality is often quite blurred and it's very hard to come up with the evidence according to not just criminal law, but even civil law to repatriate funds.”

The government, according to Kapparov, will have to cope with the financial burden of managing these assets, which in turn could end up making the return of assets an expensive venture for Kazakhstan.