Khrapunov & Company playing Monopoly: from Almaty to Toronto – and back to Geneva/I

In August this year, judicial investigations were opened against the former mayor of Almaty Viktor Khrapunov, for the usual list of suspected violations of the law: misappropriation of funds, embezzlement, forgery and a number of related offences. If charges follow, he could be exposed to the risk of arrest and end up behind bars for half a decade or more. His bait is relatively modest, and expressed in hundreds of millions rather than the billions taken away by some of his fellow-mega-fraudsters in exile. But while entrenched in Switzerland with a Swiss passport in his pocket, Viktor Vyacheslavovich, has lost no time to join the chorus of very-well-to-do “democratic” rescatores of the oppressed Kazakh nation singing its song from abroad. Meanwhile, the city of Almaty is left with Khrapunov’s caprices’ result in the form of hundreds of half-built residential and commercial blocks of varying size, soaring real estate prices as a result of the persisting shortage of space they cause, and local socioeconomic conditions hard to bear.

by Charles van der Leeuw, writer, news analyst

Khrapunov & Company playing Monopoly: from Almaty to Toronto - and back to Geneva/IKazakhstan’s Financial Police filed two criminal cases against the former mayor of Almaty city, Viktor Khrapunov in late spring. “On May 27, 2011 the financial police filed two criminal cases against Victor Khrapunov under Part 4, Article 308 of the Criminal Code,” a source in the financial police was quoted by Interfax-Kazakhstan in a report published on July 1. “Article 308 of the Criminal Code stipulates liability for abuse of power or official authority, while Part 4 specifies fraudulent actions committed to gain personal gain and cause other persons or organizations to suffer damages,” the news report read. “As reported, Khrapunov was dismissed as Minister of Emergency Situations in November 2007 after his scandalous involvement in illegal allotment of land plots in the natural preserve area near Almaty during his term in office as Almaty mayor. No details of Khrapunov’s recent whereabouts have been known. However, according to some media reports, he allegedly lives in Switzerland and was granted citizneship in the country. In 2009, the former mayor of Almaty made it to the Bilan’s list of the richest people in Switzerland. […] Khrapunov, whose fortune was estimated at 300-400 million Swiss francs was featured in Construction and Real Estate section.”

On August 19, news reels reported the start-up of a “criminal investigation” against Krapunov – without giving any details. Many backgrounds, though, have been known for some time. Thus, in its edition of September 15 back in 2009, the Almaty-based newspaper Central Asia Monitor published a long article about the trouble the building sector in Kazakhstan was entering into, featuring in particular two construction and project development enterprises which during the booming years of the early XXIth Century had dominated the market and were soon to dominate the headlines: Bazis International and the KUAT Holding. In the payment defaults to the bank credits they had taken for their fantasy projects – believed to be in the order of 2 to 3 billion US dollar together – that was to follow, the name of Almaty’s mayor at the time, Viktor Khrapunov, fell time and again while the destination of the money would appear to become more and more fantasy and less and less projects. In the third week of August this year, the Almaty prosecutor ordered a criminal investigation into Khrapunov’s wheelings and dealings to grant land and building permits to developers whose projects had weak, if at all, feasibility bases to lean on and were financed with speculative money. In the process, he never forgot his own interests and through his enterprise VILED took enthusiastically part in the “construction madness” that sizzled through Kazakhstan, and through Almaty and Astana in particular. The fact that on the financial side the name BTA and that of his one-time head Mukhtar Ablyazov also popped up time and again can hardly come as a surprise.

As noted earlier, Viktor Vyacheslavovich Khrapunov, born in 1948 in the village of Pryedgornoye, in the district of Glubokovsky in the northeast of Kazakhstan, moved to Almaty after finishing the College of Industry and Technology in Ust-Kamenogorsk. Once in the capital, he started to work first as a repair mechanic, then as a foreman, and later as senior engineer at the Almaty Thermal Power Station during the day, while studying at the Almaty Institute of Electric Technology in the evening. As was still in vogue, even necessary in those days, Viktor Vyacheslavovich secured his future career by joining political echelons through the powerful youth league Komsomol. This was to allow him to obtain the position of chairman of the Almaty Lenin district Communist Party Committee, and promoted little later to the post of first deputy chair of the Almaty City Council. From there, he moved on to the position of chairman of the Executive Committee of the City Soviet of People’s Deputies, which stood under the direct authority of the all-Union Supreme Soviet.

After a term in office as minister of energy and coal in the waning days of the USSR, and later minister of energy and natural resources following Kazakhstan’s independence as of 1991, Krapunov fell victim, following the economic near-crash of 1995/’96, to the downfall of PM Kashegeldin and most of the latter’s cabinet, and in 1997 received his poodle prize as mayor of the city and the city-province of Almaty, which he achieved in In the same year Almaty lost its position as capital of Kazakhstan to Astana, and the new mayor was faced with the explicit task to grant Almaty its own poodle prize as a dynamic regional centre of business and education.

Khrapunov’s main instrument to stash his gains was, and still is, a company called VILED International Unlimited. Numerous sites around town were bought by it that had no building permits and therefore looked of little value. He then ordered to issue building permits for them, which overnight multiplied their property value, and subsequently started offering them to the fortunate classes of Almaty, many of which had gathered their fortunes in pretty much similarly dodgy manners. Among Khrapunov’s clients was Rakhat Aliyev, banker, President’s son-in-law and head of the National Security Council, disgraced later and now in plush exile

Khrapunov himself promoted his business by withholding almost all outdoor advertising on strategic locations in and around Almaty to anyone but an advertising agency affiliated with VILED, the parent company president of which was Khrapunov’s wife Leila Kalybekovna. In all, at least 16 prime sites have been allocated in closed procedures circumventing all open bidding requirements in this manner. Some of these larger objects appropriated by the Khrapunovs included a plaza on the corner of Gogolya and Panfilova Streets, apartment and shopping space blocks on Furmanova Street Dostyk Avenue, both on the edges of the uppity business neighbourhood of Samal-2. For all 12 blocks identified as falling under VILED’s umbrella, together no more than the equivalent of 60 million US dollar was allegedly paid — at least this is what Khrapunov was to claim later — but in any case never found back in any budget in the city administration where the sums for the purchases should have been registered.

Further uphill, property, including parts of protected natural zones, were bought up by VILED and affiliated firms for even more hilarious sums. Thus, a forest site named Wood Fairy Tale and another one known as Oak Grove were purchased by a company called Gulmira Ltd., run by one of the Krapunov pair’s associates by the name of Shebityevov and believed to be closely affiliated to VILED, for the negligible amounts of 1.8 and 2.1 million tenge respectively. Public property has also been sold illegally to another one among Khrapunov’s shell firms called Phoenix Unlimited, run by a certain G. Mukashev, who in particular obtained blue-chip locations with permission to demolish the kindergardens, pensioners’ homes and other social facilities located on them, with the aim to build commercial glamour objects on them.

But in an atmosphere that is as typical in Chicago or Calcutta, in Sao Paolo or Ouagadougou, as it is in Almaty or all but everywhere in the former realm of proletarian brotherhood, success never goes unnoticed – especially if that success depends on someone wearing two caps: one labelled public and another one labelled private. In Almaty and Astana in particular, VILED had to take a number of rivals, officially fully private-held but with the obvious connections in high place within the public sector, into account from the very beginning. At this point, Khrapunov found himself entangled in a situation where he had to admit, in his function as head of the Almaty city administration, legal and physical facilities to leading project developers that would otherwise have exposed him. In this way it became possible for the likes of KUAT and Bazis to step up their pyramid projects, costs of which multiplied secured sales income in the hope to mushroom the ranks of customers to proportions which, looking back, were unrealistic from the beginning which made the entire scheme surrealistic. In the case of the schemes masterminded by Mukhtar Ablyazov, this particular type of project-spinning which could well be dubbed the Kazakh disease, spread over the Russian Federation, Ukraine, Georgia, Armenia and Kyrgyzstan. In the case of Bazis, an Almaty-based enterprise under control of Kazakh tycoon Alexander Belovich, it has been flying all over the Atlantic to land in Canada.

It was supposed to become one of the tallest glittering skyscrapers in the world, in an underdeveloped corner near, and supposed to expand, the heart of Canada’s metropolis Toronto where the country’s business life is concentrated. The developer of the project was Michael Gold, a Canadian with Russian roots and married to Veronika Belovich, the daughter of Alexander, but arm-in-arm with romance went a major-size business move after a centuries-old Kazakh tradition among the nation’s upper-class clans. Herds of horned cattle and camels and agreements on the right to graze them on contested land may have made place for blocks of glass and concrete – but the maidens have remained faithful to their part in the plot. And the towering mega-plaza was a breed any nomad lord of the steppe could hardly have dreamed of.

“The move-in date was to be sometime in 2011,” the Toronto Star wrote in an article published on July 18 2009. “When the units were first offered for sale in November 2007, prospective buyers and real estate agents paid people to line up for weeks, acting as place markers until the sales door opened. The development proposal for the property dubbed 1 Bloor was enticing. A sweeping slice of glass rising 80 storeys on the southeast corner of the ‘epicentre of Canada.’ The glossy brochure spoke of a mood of ‘effortless sensuality’ in the proposed building. There would be a Zen meditation lounge and a reflecting pool. “The interiors of 1 Bloor are sensual, seductive, sexy, sophisticated and intensely urbane.’ Units would make ‘you feel transported to a different place.’ The bathroom would be ‘a true sanctuary.’ In an interview at the time, Gold, a Russian-born Canadian who married into Kazakhstan’s wealthy Belovich family, said the response from condo buyers was “amazing.” Offering 612 condo units, Gold told the Star in 2007 he could sell 5,000.”

Could he really? Looking back, it would appear that the sales outlook was affirmative at best, and mainly meant to impress the bankers that had put their banks’ money into the project and had already been faced with arrear- and non-payments from the developer’s side for some time. “A lot happened between 2007 and now,” The Toronto Star’s article continues. “Bazis International of Kazakhstan (Gold runs the Canadian arm of the company) initially purchased the land for $63 million. To finance it, Bazis had a $46 million loan from French bank Soci?t? G?n?rale. Bazis stopped making loan payments last December. Soci?t? G?n?rale, faced with its own financial woes, sold off the loan to Berman’s group for an undisclosed amount. The group is made up of representatives of three Canadian companies, Tricon Capital Group, the Minto Group and KingSett Capital.” Now, the group wants to be paid out, or to be allowed to buy the property with an eye to building a more modest project. Berman’s group has offered $50.5 million as the opening bid of an auction they suggest take place soon.”

Court documents in Berman’s attempt to seize the loan’s collateral revealed that “…Kazakh developer Bazis International has defaulted on its land loan and the Kazakh bank backing the tower portion of the project is involved in a ‘massive financial scandal involving fake loans, racketeering and money laundering activities’,” in the Toronto Star’s words “The (land) loan has been in an almost constant state of default since December of 2008,” the newspaper quoted consortium leader Gary Berman as in a court affidavit supporting his group’s bid to appoint receiver Ernst &Young. “Berman states in the affidavit that his group wants its loan repaid, or they are willing to purchase the property in a court-approved sale,” the article read. But the knack appears towards the end of the report, which reads: “The court documents are peppered with international intrigue. Gold announced in one document that, in June, he had found a financial solution in BTA Bank, which he said committed $195 million (U.S.) to the project. However, BTA bank is under criminal investigation in Kazakhstan, according to statements made by federal prosecutors in that country. […] According to Berman’s group, they determined BTA could not possibly come up with the promised cash. The Kazakh government has announced a bailout of the bank, but international credit rating agencies downgraded BTA ‘four levels below its previous junk bond rating.’ In his response, Gold said BTA is his company’s ‘house bank’ and he believes it will be able to fund the $195 million loan to his Toronto project.”

Looking back, it looks all too much that at some point during the previous winter (or perhaps even earlier) Bazis must have had a green light from BTA under Ablyazov to go ahead with the project, in the hope that it could serve Ablyazov as a vehicle to stack money taken from the bank to “save” 1 Bloor safely abroad and thereby putting collateral out or reach. If this is the case, BTA will be faced with the task to file claims at Canadian courts of law as well – as experience in the UK so far shows, a laborious and expensive exercise. And Bazis might well be just one of the construction enterprises lured into obscurantist financial manipulations by Ablyazov and company. As shall be shown in upcoming episodes, Khrapunov’s “selfish leniency” which to large extents led to the current desolate situation on Almaty’s real estate markets, with half-finished projects still decorating the skylines and due to building stagnation soaring prices for Soviet-time space, has extended to other project developers as well – not in the least their one-time market leading KUAT. (to be continued)

by Charles van der Leeuw, writer, news analyst