"Kazakhstan and Kazakh nationals have appeared in several international scandals ... “Kazakhgate” was the largest bribery case ever tried in the USA and saw President Nazarbayev personally implicated."

Since 1989 the Republic of Kazakhstan, the most developed economy in Central Asia, has been ruled by First President of the Republic Nursultan Nazarbayev. In April 2015 Nazarbayev was re-elected for the fifth time, with 97.7% of the vote. The election monitoring mission of the Organization for Security and Co-operation in Europe (OSCE) commented that “reforms for holding genuine democratic elections” in the country “still have to materialize” and that there were “serious procedural deficiencies and irregularities” in the election.

A decade or so earlier, the President had been personally implicated in “Kazakhgate”, the largest bribery case ever tried in the USA. The same year, Imangali Tasmagambetov, then Kazakhstan Prime Minister, told the Kazakh Parliament that Nazarbayev had hidden $1 billion of state oil revenues in a Swiss account.

In 1996, the year Nazarbayev diverted money to the secret fund, the Gross Domestic Product of Kazakhstan was $21 billion. Nazarbayev’s “special reserve account” amounted to almost 5% of the country’s GDP—more than ten times public spending on Health in the same year.

Nazarbayev is not the only Kazakh official to have featured in an international scandal in recent  years. “Kazakhstan strikes me as a typical kleptocracy”, Roman Borisovich, a campaigner who starred in the Channel 4 documentary From Russia With Cash and organised the Kleptocracy Tours in London, told KYC360.

With its vast and mostly inhabited territory—it is the ninth-largest country in the world by area—Kazakhstan has abundant energy and mineral reserves. Its top exports are oil and gas, followed by minerals and metals such as coal, copper, gold and uranium. But despite this huge mineral wealth, the country remains widely undeveloped, with high levels of poverty and significant disparities in prosperity between regions. Poverty rates in Southern rural regions are almost twice as high as resource-rich urban zones in the North. “Surprisingly, poverty rates are highest in oil-rich regions”, an USAID report outlined. Nearly half of the Kazakh population (47%) live on a monthly salary of $70 or less.

 

In January 2016, the European Union and Kazakhstan signed an Enhanced Partnership and Cooperation Agreement. The new partnership provides a legal basis for improved political and economic relations between Kazakhstan and the EU, ensuring “a better regulatory environment in areas such as trade in services, the establishment and operation of companies, capital movements, raw materials and energy, government procurement and intellectual property rights”. Italy, France, Germany and the UK are among the country’s top importers and investors.

But the most prosperous of the former Soviet Republics is also “a corruption hotspot” according to the World Bank. Transparency International’s Corruption Perceptions Index 2015, which lists countries “by their perceived levels of corruption” in the public sector, ranked Kazakhstan 123 out of 168, with a score of 28 (“corrupted”) over 100.

Kazakhstan is a member of the Eurasian Group (EAG) on combating money laundering and the financing of terrorism. Yet the “legalisation of funds obtained as a result of fictitious payments effected among pseudo businesses and shadow companies” is “widespread”, according to the EAG evaluation report.

Tax evasion, fraud, appropriation and embezzlement of property are the most common financial crimes in the country. The EAG report warned that “bank employees are often engaged (…) and facilitate receipt of multi-million cash amounts”. The use of companies “established for laundering dirty money and their follow-on appropriation” is also rampant.

 

THE SWISSMAKERS

Since then, an increasing number of Kazakh PEPs have chosen Switzerland as their residence. In the last ten years the number of Kazakh nationals moving to Ticino—an Italian speaking region in southern Switzerland—has skyrocketed. Data from the Regional Statistics Office of Ticino show an increase in Kazakh inhabitants of 386% over the period.

The list of Kazakh residents past and present includes President Nazarbayev’s daughter Dinara Kulibayeva and Nurali Aliyev, son of Deputy Prime Minister Dariga Nazarbayeva (and grandson of President Nazarbayev).

“Switzerland is just the perfect place for Kazakh businessmen to invest money in”, Federico Franchini, a Swiss investigative reporter, told KYC360. “It is the main European trading spot for raw materials. A third of the global oil trade is commercialised in Geneva. And if you have something to hide, the country guarantees you a certain degree of secrecy. It was almost automatic, for them, to come here”.

Franchini recently investigated the investments of Kazakh businessmen in Lugano, a city in Ticino. “Lugano is the capital of Kazakh oil”, he said. “These people are the perfect investors, as they have almost unlimited financial resources.”

Some Kazakh investments were so spectacular that they made headlines in Switzerland. In 2008 the Swiss Development Group (“SDG”) acquired the 110-year old Hotel Du Parc overlooking Lake Geneva. SDG announced ambitious plans to convert the historical building into 22 apartments, ranging in price from four to 23 million Francs (£3.1-17.4 million), including “the largest penthouse on the Swiss market”. But the renovations were never finished and 15 contractors are now seeking legal action against SDG for 2.5 million Francs (£1.9m) in unpaid bills.

Swiss corporate filings seen by KYC360 reveal that a Kazakh national, Iliyas Khrapunov, was the president of SDG at the time. (The group was eventually sold in 2014 and is now facing bankruptcy). Iliyas is the eldest son of Viktor Khrapunov, 68, a Kazhak ex-minister of energy and ex-mayor of Almaty, Kazakhstan’s largest city and former capital. There are currently 24 criminal cases pending against Khrapunov, who is accused of embezzlement, fraud, money laundering, abuse of power and corruption. In 2012 Interpol issued a warrant for Khrapunov’s arrest and Kazakhstan officially requested his extradition from Switzerland.

The Financial Times recently revealed that in 2013 Khrapunov bought three luxury apartments at the Trump SoHo, an exclusive condo hotel in Manhattan which was at the time co-owned by Donald Trump.

Viktor Khrapunov’s lawyers and spokesmen did not reply to requests for comment from KYC360, but in a public statement released after the extradition request from his homeland, Khrapunov declared that “such machinations are typical for President Nursultan Nazarbayev, who established a dictatorship in Kazakhstan”.

“In Switzerland, the real estate business is not subject to anti-money laundering regulation"

Federico Franchini

“In Switzerland, the real estate business is not subject to anti-money laundering regulation”, Franchini explained. “A real estate transaction is not considered a risky one. This opens the doors to money launderers from all around the world.”

In 2006, Timur Kulibayev —Nazarbayev’s son in law and oil magnate— acquired a 100-year-old residence, Villa Romantica, for 8.5 million Swiss Francs (£6.7m). In 2009, Kulibayev’s wife and Nazarbayev’s younger daughter, Dinara Kulibayeva, bought a property for 74.7 million Francs (£58.9m) in Anières, near Geneva. In 2010, following the purchase of these properties, Swiss prosecutors launched a probe against Kulibayev into allegations of the embezzlement of funds in oil asset transactions.

Kulibayev, the third richest man in Kazakhstan, was accused of having laundered $600 million of illicit assets in Switzerland. Swiss authorities have also frozen almost 500 million Francs (£395m) in bank accounts linked to Kulibayev. In 2013 Kazakhstan’s financial police refused to cooperate with the Swiss authorities, announcing there was no case to answer. The inquiry was then dismissed.

The last “Report on the evaluation of risks of money laundering and terrorism financing in Switzerland”, published in June 2015, confirms the “attractiveness of the Swiss estate market to money launderers”. The report analyses how criminals are particularly attracted by “high value properties” and mentions the scheme for the acquisition of Villa Romantica as a case study.

According to the Swiss Police, “an exaggerated price as well as excessive transformation and extension plans of historical monuments are all indicators of possible money laundering”.

A similar “scheme of complex structures of companies” used to acquire of Villa Romantica, in Switzerland, was adopted by other Kazakh figures connected to the ruling family in the purchase of a £147 million property in the United Kingdom.

In 2015 an in-depth investigation by watchdog Global Witness revealed that large swaths of iconic Baker Street, in London—including 221b, the fictitious address of Sherlock Holmes—were owned by a BVI company linked to a corrupt Kazakh official.

The network lead to the circle of Rakhat Aliyev, an ex Kazakh senior official and former son-in-law of President Nazarbayev. Despite allegations of serious crimes including embezzlement of funds and money laundering, Aliyev held high profile political roles in Kazakhstan. He had been Chief of Tax Police, Deputy Chief of the State Secret Police and ambassador to Austria, Serbia, Slovenia and Macedonia. Aliyev used his public functions to develop a vast business empire.

In 2007 he bought Nurbank, one of the biggest banks in the country. Shortly after, two Nurbank managers were kidnapped and killed and Aliyev moved to Austria. A Kazakh court sentenced him in absentia for murder. In 2014 Aliyev was arrested in Vienna and, in February 2015, he committed suicide in an Austrian jail while awaiting trial for the murder of the two bankers.

SHADOW ECONOMY

The cases of Aliyev, Khrapunov and Kulibayev show how Kazakh state funds have been constantly channeled offshore and reinvested in legitimate business in Europe and the USA — particularly in the real estate market.

In its 2016 International Narcotics Control Strategy Report (INCSR), the US Department of State deemed Kazakhstan “a jurisdiction of concern”. “Governmental corruption, an organized crime presence, and a large shadow economy make the country vulnerable to money laundering and terrorist financing”, the INCSR wrote.

“A significant part of Kazakhstan’s mineral wealth is held in offshore accounts with little public scrutiny or accounting oversight. The major sources of laundered proceeds are graft by public officials, tax evasion, and fraudulent financial activity, particularly transactions using shell companies”, says the report.

In June 2017, Astana, the Kazakh capital, will host the International Exposition on Energy. The Diplomat claims that the event, which has a reported cost of $3 billion, is becoming “a corruption show”. A number of major corruption cases have indeed plagued the EXPO, in which more than 100 countries are expected to participate and which is an important showcasing opportunity for corruption-vulnerable industries such as oil and mining. In light of recent scandals banks and private investors should exercise caution when dealing with Kazakh funds and conduct especially thorough due diligence on their customers.

Contributor Profile
Emanuele Midolo
Freelance investigative journalist