The making and breaking of Almaty: how to squeeze cash
A sanatorium meant to grant elderly people, including those who have risked their lives in the ill-fated attempt by the Red Army to get Afghanistan under control, some comfort towards the end of their lives, two kindergardens meant to give the young some comfort and hope and a number of vacant locations, have been illegally appropriated by companies affiliated with Almaty’s former mayor Viktor Khrapunov, with the ultimate aim to resell them to developers planning to build glossy plazas for the newly rich to indulge in. Four individual, though strongly interrelated, cases have been singled out as samples by prosecutors currently investigating into the complex string of affairs in order to sustain criminal charges put forward against the ex-mayor and some of his associates. The complete picture, though, is supposed to be a lot more complex and involves much larger sums of cash pocketed in the process – given the hundreds of million Swiss francs the Khrapunov family is indulging in up in Switzerland these days. In all: a multi-layer scheme with striking similarities to those deployed by those other notorious long-fingered gentry from the plains such as Mukhtar Ablyazov and Rakhat Aliyev.
BY CHARLES VAN DER LEEUW, KZW SENIOR CONTRIBUTOR
1. The Shadid case
Shadid Engineering LLP. An Almaty-based real estate trading and development firm, used to own some 2.18 hectare of building sites on the southern outskirts of the centre of Almaty. Not an awful lot of land – unless it is right in the heart of a development space meant to become the new glossy uppity business class area of the “southern capital” of Kazakhstan. There was a city plan in place, but the information was not accessible to private parties. Therefore, the City Hall could redraw frontiers between allotted and non-allotted pieces of land at random – which it did on request of the Mayor.
According to preliminary results of judicial investigations, his accomplices within the public sector included the chairman of the Almaty City Architecture and Planning Department (ACAPD), a certain S. Baimagambetov, and his peer chairing the Almaty Land Resource Committee by the name of A. Saparov. On the “private” side, there were the firms KazRealIncome LLP and General Realty LLP, both controlled by a certain A. A. Sadykbayeva, Karasha Plus LLP owned by Leyla Khrapunova’s sister G. K. Ilyasova and finally Building Service LLP, controlled by Almaty’s First Lady herself.
In the course of 2003, Shadid was to find out to its dismay that the land it was supposed to own had been incorporated into property under responsibility of the municipality and “made available” to other would-be developers. The land had been “transferred” to KazRealIncome first, which almost immediately sold it to Karasha Plus. Subsequently, the latter swapped the property against 100 per cent of the shares in Madame Leyla’s Building Service. Originally, KazRealIncome had bought the property rights for 16.6 million Kazakh tenge – around 140,000 US dollar at the time. By the time the final swap deal took place, its trade value had gone up to the order of $170,000. In the process, another 1.32 hectare of blue-chip sites in the same area had been acquired by Karasha Plus through similar procedures. Control over the entire cluster of plots, located on Gornaya Street in the aforementioned area, included the right to demolish existing buildings, including a nursery school.
2. The nursery school case
Among other cases popped up during recent investigations is the one of another nursery school downtown Almaty which was put on sale by the municipal property management office through the Almaty Territorial Committee for State Property and Management, the chairman of which, a certain K. M. Biskultanov, is now believed to have been an accomplice in the scheme. It all started back in 2001, when the centre, built in Soviet times and in dire need for renovation, became the object of a privatisation tender issued by Biskultanov’s office. There is doubt today whether the plot could be privatised under the law to begin with. Whatever the case, the winner of the tender would be obliged to pay up for a bill amounting to 464.9 million Kazakh tenge (about 4 million US dollar at the time) for repairs and refurbishing.
The knack in the process was soon to become clear. The tender was won by a company called KazRealIncome LLP, general director of which would turn out to be a certain Mrs. A. A. Sadykbekova – a name that also appeared in the higher echelons of the Almaty City administration. A complicating factor, though, was that there had been a contender in the tender in the form of a polyclinic called Baynalys. The latter suspected a kickback and tender information leaks, resulting in a fake valuation of the plot, and took the case to court. After the court had been dragging its feet (pressed?) for more than two years, the municipality considered the case expired and ordered the property transaction to KazRealIncome. Within a month after the transfer, the latter sold the property to another company called Karasha Plus LLP. It would appear later that Karasha belonged to Gulnar Ilyasova, the sister of Viktor Khrapunov’s spouse Leyla. General director of both KazRealIncome and Karasha was a certain A. U. Karimsakov.
Within two days following the transaction, reportedly worth 52.1 million tenge, without even mentioning the sum needed to be paid for the renovation, the plot was re-sold to another company called Building Service Company LLP, owned and headed by Almaty’s First Lady Leyla Khrapunova, for the same price. This only enriched the latter firm’s property to a total exceeding 2.5 hectare of blue-chip land downtown Almaty. By the end of 2003, Building Service Company LLP was sold for just over 2 billoion Kazakh tenge to another company the name of which has yet to be disclosed. It would appear, though, that the payment for the purchase ended up on a Swiss private bank account on the name of no one less than Leyla Khrapunova.
3. The veterans’ sanatorium case
Yet one more affair concerns the option for Khrapunov to lay his hands on some “immune” property secured by the public sector in this manner back in 2001. At stake were two plots of historic prestige even though they hardly might have looked like it. But the two dull-looking premises on the outskirts of the centre of Almaty harboured the most venerable old soldiers who heroically exposed themselves to the deadly gun- and tank-fire in the Second World War and after that in the Soviet Union’s hapless war in Afghanistan (featuring remarkable similarity with America’s present-day killing fields on the same location) in which despite the war’s misconception they hardly showed to be less foolhardy for it.
In 2001, Khrapunov must have decided somehow to lay his hands on two premises which consisted of homes for war veterans and other honourable pensioners. By law, they were prohibited from privatisation, but transforming them from pubic organisations into so-called joint stock companies with one hundred per cent of the stock owned by either the state, the province or the municipality appeared to be perfectly according to the letter of the law. Even better: such structures remained open to new capital support which without having to go through laborious procedures left the door open to private purchases of interests in such enterprises.
What happened afterwards, according to documents made available to the public domain by Kazakh prosecutors, went roughly as follows: initially, 5 per cent of the stock were handed over by the site’s original owner TechMedService against a capital injection input of rather symbolic-looking proportion to KazRealIncom LLP. In the course of 2003, TechMedService was liquidated. Subsequently, the remaining stock in the public company was handed over to the private company Phoenix KH Company LLP under conditions that were to remain unclear – except for the fact that Phoenix, the management of which used to consist of a the already mentioned Mrs. A.A.Sadykbayeva and her deputy S. S. Kyrykbayev, ultimately fell under the Khrapunov Family’s control and is supposed to have been instrumental in funneling the Phoenix was first established on November 19 2003 and according to Swiss trade registers it initially had a board consisting of Viktor Khrapunov’s spouse Leyla, their son Ilyas and his father’s daughter from his first marriage Elvira Byelmadani. As of April 2004, a certain Aynagul Sadikbayeva replaced Almaty’s first lady and the name of Daniyel Khrapunov, his and Leyla’s youngest son who had been borm less than five years earlier, was added to the list. On June 17, 2005, the company’s name changed into Swiss Kazakh Phoenix Holding, to change little later into Swiss Kazakh Phoenix Holding Internationa, located at 63 Tole Bi (former Komsomolskaya) street, downtown Almaty. From there on, it was headed by a Swiss national named Philippe Meyer.
4. The Delamore bond case
Back in 2003, the city of Almaty issued a series of 15 promissory notes with a par value of a million US dollar each. Their collateral consisted of stock in a skeleton enterprise, apparently without any benchmark share price but at the same time the nominal holder of the construction contract for the new terminal of the Almaty international airport. The enterprise’s name was Delamore Trade and Investment, a subsidiary of Delamore Group, which in turn controlled Imstalkom. As described earlier, after the terminal was opened by the end of 2004 after two years of delay, its construction bill turned out to amount of the equivalent of 52 million US dollar rather than the $21 million in the budget.
Imstalcom, yet another firm traces of which lead to the Khrapunov family, popped up in the final account once more, and in the end was reported to be left with a debt of 330 million tenge – about 2 million dollar at the time. Not a big sum, but enough to draw the attention of public prosecutors who after Khrapunov’s departure traced the company back to a parent firm called Kazan To. Behind the latter appeared to stick a certain Ablay Karimsakov, brother of a city administration top official called Tlek Karimsakov. In turn, Kazan To appeared to be wholly or partly under control of another company called Phoenix, owned by the Khrapunov family.
Delamore has recently been identified as the immediate buyer of the notes in preliminary investigation results by the prosecutor’s office. In the course of 2004, however, they appear to have sold their paper to a firm the name of which has not been disclosed, which in turn sold it to an Irish bank called Depfa. Though not pointed at by the authorities as a guilty party in their investigations after Khrapunov, the latter appears to have bought the notes for the total sum of 7 million dollar. Depfa Bank, with its headquarters in Dublin, is also the 100 per cent owner of the German real estate and mortgage company Hypo Real Estate Holding AG. The following year, the city of Almaty defaulted on its repayment, which prompted Depfa to take the case to court. In 2006, the municipality paid out the sum of $8,891,600 to Depfa, including trial costs and penalties, following a court order. What happened to the difference between that sum and the original purchasing price of $15 million plus premiums remains to be guessed. Prosecutors suspect a kickback along the string of deals to which Viktor Khrapunov must have been far from strange.
Four tips of an iceberg
The four cases hitherto identified by prosecutors are not only intertwined, but also closely related to a long list of similar transactions involving both mentioned and other transitional firms to set out a dead-end chain of subsequent property ownerships eventually sold with multi-million profits through the Khrapunov family’s carousel. According to initial information given in a series of articles published by the Kazakh periodical Vremya back in early 2007, Khrapunov’s main instrument to stash his gains originally was a company called VILED International Unlimited, president of which was Khrapunov’s wife Leila Kalybekovna. at least 16 prime sites have been allocated in closed procedures circumventing all open bidding requirements in this manner, authorities reported towards the end of 2011.
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 downtown Almaty 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.
But deals used to stretch much further uphill, where 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 financially dependent on 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 Abdulaziz 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. Phoenix at some stage was taken under the umbrella of an affiliated holding called Swiss Kazakh Phoenix Holding, assumedly having its headquarters in Switzerland.
Investigations concerning Khrapunov’s network of proxies and the property deals involving it have been going on for less than a year so far. “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 obtain personal gain and cause other persons or organizations to suffer damages,” the news report read. On August 19, newsreels reported the start-up of a “criminal investigation” against Khrapunov – without giving any details. As reported earlier in the year, Khrapunov and family, now entrenched in Switzerland where Victor, his spouse Leila and son Ilya are each on the list of the country’s 100 wealthiest, pocketed large chunks of property on the name of a string of private enterprises which they controlled. Requests have reputedly been forwarded to Swiss authorities to investigate into attempts by the Khrapunov family to launder its ill-gotten gains in the area of Geneva.