From downtown Almaty to Wall Street, New York through Geneva: the Khrapunov-trick under the eyeglass

Former mayor of Almaty and his family, now hiding high and dry in Switzerland on the shore of Lake Geneva, have completed one more stage in securing the money cashed in on illegal and abusive deals at the time he was at the helm of Kazakhstan’s sole metropolis. Swiss legal experts meanwhile focus on real estate business as a loophole to circumvent anti-laundering legislation and regulations in the Confederation, committed by an increasing number of former Soviet citizens – featuring the Khrapunov case. But banks are unlikely to come out unscathed as well, should the law finally prevail over legal abuses. Not just technical adjustments, however, are needed for that and could well prove to be futile without a profound change in mentality in the ranks of bankers and other operators in cross-border markets.

BY CHARLES VAN DER LEEUW, KZW SENIOR CONTRIBUTOR

From downtown Almaty to Wall Street, New York through Geneva: the Khrapunov-trick under the eyeglassRecently, Ilyas Khrapunov, the son of the ex-mayor of Almaty, bought the fice-star H?tel du Parc on the slope of Mont-P?l?rin close to Geneva, for an undisclosed sum, SwissInfo reported in mid-April. The purchase followed that of a luxury villa in the suburb of Cologny for 32 million Swiss francs. The hotel’s purchase is likely to bring young Khrapunov’s Swiss property ‘s value above 100 million francs – or between a quarter and a third of the family’s alleged fortune on Swiss territory. The agency in its report quoted Mark Pieth, a professor in criminal law at the Basel university, as explaining that whereas in any bank transaction topping 10,000 Swiss francs, the origin and the destination of the money has to be clarified – and in case of suspicion reported to the authorities by the bank. In cases of property transactions, that rule does not apply for some unknown reason – hence the current accumulation of “suspicious” purchases by former Soviet individuals on Swiss ground.

To prosecutors and investigators back in Kazakhstan, there is little doubt concerning the origin of the money, “The former mayor of Kazakh city of Almaty and former Kazakh Minister for Emergency Situations Viktor Khrapunov is declared wanted by International Criminal Police Organization Interpol, the organization was quoted as announcing on February 23 this year by the Kazakh branch of the Azeri news agency Trend. “According to Interpol, Khrapunov faces charges of money laundering, fraud and transnational crime organization. Some 20 criminal cases have been filed against former Almaty Mayor Viktor Khrapunov, Kazakh Agency for Fighting Economic Crimes and Corruption representative Murad Zhumanbay said. The agency has filed and is investigating 20 criminal cases against Khrapunov in a series of corruption and economic crimes. Khrapunov has been charged in absentia and the court has sanctioned his arrest. On Feb. 8, Khrapunov was included on the international wanted list, Zhumanbay said.”

As noted before, Viktor Vyacheslavovich Khrapunov was born in 1948 in the village of Pryedgornoye, in the district of Glubokovsky in the northeast of Kazakhstan. After finishing the College of Industry and Technology in Ust-Kamenogorsk, 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. Next to his professional career, Viktor Vyacheslavovich made sure to get well-established in party echelons – indispensable in those days to secure any longer-term career to speak of. He first won the position of chairman of the Almaty Lenin district Communist Party Committee, to be promoted little later to the post of first deputy chair of the Almaty City Council. From there, he move 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, and later minister of energy and natural resources following Kazakhstan’s independence as of 1991, he obtained the reward he had always seen as the crown on his career: mayor of the city and the city-province of Almaty, which he achieved in 1997

As reported earlier, Viktor 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. 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. 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 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.

In an analytical report published on May 10 this year, the Kazakh newsreel dialog.kz resumed the method used by Viktor Khrapunov and his relatives and other associates to cash in on property value manipulations. In particular his spouse Mrs. Leyla Khrapunova is believed to have gathered tens if not hundreds of millions of dollars on bank accounts of a number of enterprises under her control by spending peanuts on purchases of land in and around Almaty for peanuts – since those lands were not provided by construction licenses. After that, her husband issued those licenses, including in a number of cases by permits to demolish existing buildings (such as kinder gardens, nursery homes and sanatoriums), whereupon Mrs. Leyla could sell the companies that owned the property for coconuts. The revenue was transferred to Swiss banks – but the money was not used to buy property in the land of cuckoo clocks and cow bells directly. Instead, banks left it untouched on the accounts and used it as collateral for mortgages signed up to by the Khrapunovs for the purchase of their new assets. This can only lead to the conclusion that the laundering operation could never have taken place without the complicity – either wittingly or by negligence, of the banks involved.

A continuing stream of reports on suspicious deals by banks on various markets seems to sustain such allegations. “JPMorgan Chase is expected to accept the resignation of one of the highest-ranking women on Wall Street after the bank lost $2 billion in a trading blunder,” The Associated Press reported on May 13, quoting an unnamed “person familiar with the matter”. The person concerned appeared to be Ina Drew, the bank’s chief investment officer. “She was paid $15.5 million last year and almost $16 million in 2010, making her one of the highest-paid officials at JPMorgan,” the article relates – quoting the bank’s CEO Jamie Dimon as qualifying the event as “a terrible mistake” while declaring that “…the bank is open to inquiries from regulators” in the agency’s words. “[Dimon] has also promised, in an email to the bank’s employees and in a conference call with stock analysts, to get to the bottom of what happened and learn from the mistake.” Mistake? Billions of dollars cannot ever “disappear” without popping up somewhere else. Where? This is what the bank’s management should tell, preferably in front of a court of law. For failing to identify the current location of the 2 billion “missing” or “lost” means turning a blind eye on what looks like just one more formidable kickback.

Experience from the distant to the recent past may well prove insufficient to meet the challenges our contemporary economic constellations is faced with. Therefore, sideliners tend to note that a new universal concept should be drafted, based upon a global consensus in a world where squabbling prevails over thinking, and egoism over solidarity. In the run-down of what has been dubbed the “global crunch”, views on what caused it in the first place dramatically vary – which virtually closes the door to any prevailing view on how to constrain the risk of having it happen again. Cosmetic measures, such as tightened “control” and “regulation” of markets have been proposed by the score, but no one so far seems to have questioned the basics according to which those markets work – let alone whether or not they necessarily work and whether or not there should be some alternative basics taken under consideration. By taking “classical” basics for granted, the sting remains in place. There is no rule, let alone law, however, that dictates these fundamentals and require them to remain unchallenged. In reality, the scope of a “free market” should be considered much broader than the narrow interpretation it is being given today by economists and other so-called experts. It does need some imagination to pceive it, but a closer look into economic history can help a lot indeed. Virtually all issues at stake such as state and other communal versus private control, national interests versus opportunities for prosperity increase through cross-border trade, capital value versus produce value and the relation of both of them to labour, have been debated for many centuries, sometimes resulting in “experiments” on varying scales – eventually resulting in the antagonism “capitalism” versus “socialism” or “right” versus “left”

For Central Asia as well as most other parts of the former Soviet Union, so-called free-market “capitalism” is a novelty with no historic roots to speak of. For many centuries, society consisted of ever-shifting tribal confederations, leading to successive “empires” consisting of a hierarchy of clans and tribes, dominated and governed by one or more military clans – a heritage from the Scythians who had controlled most of Central Asia since the early Ist Millennium BC. Many centuries later, Joseph Stalin decided that the mind should be included in global collectivisation – thereby pushing the entire socialist venture straight towards the abyss and turning existing genuine solidarity in the Soviet realm into cynicism and other symptoms of mental degradation. This, first of all, should make us think about how to redefine the term ideology. Second, we should redefine the function of ideology. Third, we should ponder on the question how to manage an ideology while it is being put into practice. On one hand, it must be protected from destructive distortion which makes the entire scheme end in chaos. On the other hand, we must prevent ideology from turning into doctrine in the process, keep the original idea open to adaption imposed by changing realities and demands in the world. While being put into practice, a thought or a conglomerate of thoughts must both be supported and questioned all the time. This Confucian notion of a combination of mental and tangible social development has made China survive to the extent that today it is developing itself from the world’s corner of despair hardly more than a century back time to a model for the future – all its current shortcomings notwithstanding. It seems a long way off, but there and nowhere else lies the key to avoid “mistakes” such as those committed by the likes of Drew, Khrapunov and Ablyazov in the future and recuperate the money siphoned in the process.

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