KZ.expert editorial office has come into possession of an interesting document that has to do with the “war” between the Republic of Kazakhstan and Moldovan businessmen Anatolie and Gabriel Statis. The document shows that, in this war, the total amount of the country’s financial losses has already reached $246 mln. The question is – qui bono?
On August 27, 2019, the Ministry of Justice of the Republic of Kazakhstan has released an online announcement that “KPMG is annulling the audit report on the falsified 3-year financial results presented by the Statis”. Judging by its content, this is the Ministry and its head Marat Beketayev’ response in the information war against Anatolie and Gabriel Statis.
We will recall that the Moldovan businessman has recently achieved a serious tactical success in the process of subjecting Kazakhstan to pay more than half a billion US dollars following the Dutch arbitration court’s decision (for more details see Akorda’s Failure in the Stati Case).
Let us quote from the aforementioned press-release and underscore the most, in our opinion, important passages (or those containing some cardinally new information).
“In the letter of August 21, 2019, KPNG Audit LLC (KPMG) informed the Republic of Kazakhstan on the annulment of the eighteen (18) audit reports on the three (3) years of financial results presented by the companies controlled by Anatolie Stati (Stati) and announced that “one should not rely on the audit reports conducted by KPMG Audit LLC”.
“The material reviewed by KPMG included the evidence proving that Stati overvalued the price of his alleged investments in Kazakhstan by hundreds of millions of dollars via the fictitious secret transactions with affiliated parties. The material also contains the sworn testimony of former Stati’s financial director Mr. Artur Lungu received by the Republic in April 2019…”
“Currently, the Republic of Kazakhstan is taking measures to inform the authorities on the actions and conclusions made by KPMG. On August 22, 2019, the Republic sent KPMG’s letter and the accompanying materials to the Dutch court in which Stati is requesting the forcible execution of the Energy Charter Treaty (ECT) obtained via fraudulent means. The hearing of the Dutch case is scheduled for August 27, 2019”.
In our opinion, the quoted press-release is intended for Akorda, for the Kazakh press and civic society and its main task is to sooth them. The thing is that the war with Anatolie and Gabriel Statis has not simply got dragged down, it has turned into a big problem for the country. Of course, this problem is not as important for the local political developments as the one of Mukhtar Ablyazov, nonetheless, this subject is still a rather sensitive one.
With that, Akorda cannot bury the hatchet due to certain circumstances among which the necessity to name and punish those who made the decision to rob the Moldovan investors is the most crucial one. And those are rather important people in the country’s ruling elite.
Apart from that, acknowledging a defeat and standing down in such big a confrontation would be almost suicidal for the Kazakh authoritarian political system and the super-presidential power vertical. But if the Ministry of Justice and its head Marat Beketayev are fated to protect the power till the last state-budget dollar, the other state agencies have enough well-informed officials who know full well how the confrontation with the Statis might end if the latter will be able to find, “arrest” and collect more than half a billion dollars.
To confirm this, let us relate some provisions of the document we have received from a source whose name cannot be disclosed due to security reasons. Prepared inside one of the Kazakh state agencies, this document has found its way to the head of the agency in an unofficial capacity, therefore, does not have limitations in terms of secrecy.
On the current state of affairs
The arbiters’ July 2010 conclusions on the expropriation of Stati’s Kazakh properties represented by two oil deposits (Tolkyn, Borankol), one oil block (structures Tabyl, Munaybay, Bakhyt) and a gas processing plant in the Mangistau region served as the basis of the arbitration court decision.
The appeal of the Kazakh Republic was denied by the Svea Court of Appeal in December 2016.
In October 2017, the Swedish Supreme Court denied Kazakhstan’s appeal of Svea Court’s decision thus leaving the initial arbitration court’s decision intact forever. Therefore, the main part of the litigation has long been finished. Presently, there can only be the matter of enforcing the execution of the arbitration court’s decision due to Kazakhstan’s refusal to pay the awarded sum voluntarily.
On the enforced collection of the money from Kazakhstan
In February 2014, Stati filed the claims regarding the enforced acknowledgement and execution of the arbitration decision on the territories of the UK and the USA to the public courts of the said counties (London and Washington D.C.). Later, Netherlands, Belgium, Luxemburg and Italy were added to this list.
Thus, the enforced execution of the arbitration decision has created a situation that is extremely dangerous for Kazakhstan considering the further risks and consequences of the pecuniary nature:
1. The inability to purchase or own property as well as conduct normal business activities on the territories of the three Kazakhstan’s important economic partners (the USA, Italy, Sweden).
It is expected that, by January 2010, Netherlands, Belgium, Luxemburg and Russia will be added to the list.
2. The normal operation of the Kashagan field are under threat due to the Dutch court’s arrest of Samruk-Kazyna’s share (in the amount of US$ 5.2 bln) in Dutch company KMG Kashagan B.V. through which Kazakhstan is participating in the development of the said field.
We should remark that a number of Asian financial creditors of Samruk-Kazyna have already defaulted the company’s financial obligations due to the said arrest.
On the litigation expenses
About $10 mln of tax-payers money is paid just to delay the claim payment on an annual basis. The total amount spent during the entire litigation period on paying for the legal services is getting close to US$ 100 mln. And this is considering that, as of today, the claim amount constitutes US$ 535.5 mln!
Apart from that, the interest on the sum of the arbitration decision is being charged as well.
The sum awarded in December 2013 to Stati according to the arbitration decision, at that moment, constituted US$ 506.7 mln.
At this moment, taking into account the added interest, the amount has reached US 535.5 mln. Given the current dynamics of the US treasury bonds interest growth (the claim payments are tied to the bonds) the amount may rise up to US$ 550 by January 2020 (and up to US$ 580 by January 2021).
On the things already arrested in relation to the property claim
There is the arrest of the shares of 33 Swedish public companies (Volvo, Electrolux, etc.) in the amount of about US$ 85 mln included in the National Bank’s savings portfolio transferred by the Kazakh Government to the NBK for trust management.
With that, Stati has already won the initial court litigations in Sweden. There is the Nacka District Court decision of July 5, 2019. Even though the Republic of Kazakhstan and the NBK have appealed the decision, it is quite likely that the appeals will be denied.
In Luxemburg, they have arrested the 40% of Eurasian Resources Group’s shares that belongs to Kazakhstan (through the Ministry of Finance). (60 % of the company belongs to Alexander Mashkevich, Alidzhan Ibragimov and Patokh Shodiyev).
The value of the properties arrested in Luxemburg constitutes about US$ 400 mln and, after August 2017, Kazakhstan no longer has a legal opportunity to receive the dividends as an ERG shareholder.
In Belgium, they have arrested the monetary funds and securities of the NBK’s savings portfolio kept in Bank of New York Mellon in the amount of US$ 22.6 bln (later, the sum would be reduced to US$ 530 mln which constituted 13% of Kazakhstan’s total GDP for 2017.
According to the modest estimates of the Kazakh side, the state budget losses sustained from this arrest alone constituted at least US$ 117 mln.
In Netherlands, thy have arrested Samruk-Kazyna’s shares and the dividend rights in Dutch company KMG Kashagan B.V. in the amount of US$ 5.2 bln. It is through this company that the Republic of Kazakhstan is participating in the development of the Kashagan field, the biggest oil and gas deposit in the Caspian Sea.
Thus, at this point, the total value of Kazakhstan’s arrested properties in all the jurisdictions exceeds US$ 6.2 bln; with that, at the peak of the arrests (October 2017 – May 2018), the said value exceeded US$ 28 bln which equals about 16% of the country’s total GDP for 2018.
Considering everything that has been said, the authors of the document assume that Kazakhstan will have to pay the claim award to Anatolie and Gabriel Statis and, in view of this, ask the question – who wants (needs) this delay?
In their opinion, the total amount of the country’s losses has already reached about $246 mln ($100 mln was spent on the legal services, $117 mln was lost due to the arrest of the NBK’s funds and securities in Bank of New York Mellon and $29 mln are the interest charged to date).
Among the other “news” contained in the cited document, there is information that:
- in August 2017, the Swedish court enforcer seized Kazakhstan’s bank accounts in Sweden which resulted in the disruptions in the Kazakh diplomatic mission’s operations and created a very unpleasant diplomatic embarrassment for Kazakhstan’s Ministry of Foreign Affairs; later on, the seizure was lifted;
- high-rank officials from the Ministry of Finance, the Ministry of Justice and the National Bank of the Republic of Kazakhstan had to give sworn testimony in the US and Sweden as part of the enforced execution of the arbitration decision. Particularly, during the period from April to June 2019 alone, they questioned Kalymzhan Ibragimov (Deputy Chief of the State Property Committee at the Ministry of Finance of the Republic of Kazakhstan), Almat Madaliyev (Vice Minister of Justice of the Republic of Kazakhstan) and Aliya Moldabekova (Director of the Monetary Operations Department of the National Bank of the Republic of Kazakhstan);
- in October 2017, President Nursultan Nazarbayev cancelled his official visit to Sweden due to the concerns about an arrest of Kazakhstan’s official delegation’s properties on the territory of this country. As a result, the signing of a number of important contracts was undercut.
The cited document also contains an explanation (a sensational one, in our opinion) as to why, contrary to Mukhtar Ablyazov, Anatloie and Gabriel Statis have been able to endure such a longstanding and expensive war with the Republic of Kazakhstan in the courts of several foreign countries simultaneously.
As it turns out, the Moldovan entrepreneurs have had an opportunity to use the funds of Burford Capital. According to the authors, it is the world’s biggest third-party litigation funder whose total portfolio amounts to US$ 3 bln.
Moreover, several of Stati’s international creditors-partners have also given their support to the businessman.
The document’s authors believe that it is enough for the Statis to see at least one of the aforementioned litigations to the end (except for Sweden) in order to collect the entire (or almost entire) claim amount from Kazakhstan in a compulsory manner, without a settlement agreement.
As for the actions and the arguments presented by the Ministry of Justice and its head Marat Beketayev, the authors of the document describe them in an extremely negative way.
For instance, the Ministry’s main argument against the necessity of the voluntary debt payment is the citing of the British court’s decision of June 2017. It ruled (on a purely preliminary basis and without a comprehensive study of the case materials) that there were reasons to believe that the arbitration decision had been obtained via “fraudulent” means. However, the document’s authors believe that this success of the Kazakh Ministry of Justice was short-lived and local since the courts of all the other countries where the litigations related to the enforced execution of the arbitration decision have ended or are still underway refuse to follow the ruling of the British court.
Apart from that, the Statis have successfully managed to stop the process of the enforced execution of the arbitration decision on the UK territory (the only jurisdiction where the British court’s ruling could have had some legal effect) via winning the appeal in the local appellate court in August 2018 thus completely negating the partial success of the Ministry of Justice and the local attorneys it hired.
If, to all of this, we are to add the accusations of undervaluing the risks and concealing the threats as well as the misleading of the country’s top officials, it is very likely that the cited document may soon turn into a big headache for the Ministry of Justice and Marat Beketayev, this time, within the super-presidential power vertical. With that, the shake-down will be substantiated and, given the current situation, dangerous not only for the head of the agency but for the people protecting him.
