Kazakh bankers: jailhouse rock

Overdue financial reports from Kazakhstan’s troubled banks over the first half year are nonetheless true eye-openers to the general public and judicial investigators alike. As it seems, far less the global financial and subsequent economic slump than massive embezzlements have been behind the cash-drain that has hit the Kazakh banking and finance sector. Some of the culprits are on the run, with others having been caught. Open question remains where the cash is.

by Charles van der Leeuw, senior KZW contributor

Kazakh bankers: jailhouse rockIn the first half of the 1970s, shortly before the civil war in Lebanon broke out, there was a banker by the name of Roger Tamraz, owner, president and CEO of Intrabank. He fled the country after a couple of years following the disclosure of the disappearance of around 1 billion US dollar in deposit holders’ money to Caribbean and Pacific hideouts under the guise of “investments”. Pre-war Lebanon, already a nest of intrigue where cash was flying around as easily as bullets, had seen it, and worse, before and was bound to keep seeing it. For all it matters, Tamraz was, and still is, a top stringer for the CIA.

About a decade later, Tamraz reappeared in Beirut, this time under the bombs and shells and haunted by snipers and kidnappers, and founded the Al-Mashrek Bank, doing what he had done before one more time for about the same amount. Shortly before the war came to an end, he left the country head-over-heels once more, claiming at a hastily organised press conference at the Summerland Hotel on the beach of West-Beirut that the PLO was after him. This time, he had more reasons to be afraid since rather than the PLO some of Lebanon’s warlords, enriched by warfare, had been lured by him and would not take sorry for over and done with.

From war-torn Lebanon to peaceful Kazakhstan. Here, in the weekend of August 24, one-time Alliance executive Zhomart Yertayev was put under arrest on charges of embezzlement under the inert summer sun of Almaty. Authorities are investigating his role in twisting the figures in Kazakhstan’s fourth-largest bank Alliance, now in serious trouble, for the sum of 1.1 billion US dollar. Yertayev had headed Alliance Bank from 2002 till 2007.

One month earlier, word had come out that Alliance Bank’s former chairman and largest individual shareholder Margulan Seysembayev had “escaped from the country”, along with suggestions how he is supposed to have channeled depositors’ and investors’ money, nominally hedged in securities through two Moscow-based investment companies, Metropole and Renaissance Capital, to empty shell companies in tropical havens with no intention to return it to Kazakhstan. Seysembayev has denied all allegations and said he was “on vacation” and due to return to Kazakhstan in September.

So what has been going on? According to a number of news reports by Bloomberg, in late May Alliance gave the two Russian lenders $561 million and $542 million respectively “… in US treasuries to repay funds borrowed by offshore companies from 2005 to 2008,” in the words of a report dated June 3. The report also quoted Yertayev as saying he was “puzzled” by the affair since the entire transaction had taken place in the open and passed through all auditing procedures. As the affair continues, defendants are likely to claim that the sale of securities was meant to hedge “real” placements of money elsewhere.

Burning questions now preoccupying investigators: where is elsewhere and how real is real? The first question seems to have been answered: the British Virgin Islands and Samoa, scarcely populated tax havens harbouring myriads of ghost enterprises and thus many myriads of fortunes of varying size. A substantial part of those fortunes consists of money that is painfully missing elsewhere in the world. Part of that elsewhere is no place less than Kazakhstan.

Was it coincidence? On the same day word came out on Yertayev’s arrest, August 26, the first court hearing was held in the case against Bank TurnAlem (BTA), involving “only” 300 million dollar. The main defendants are former BTA chairman Mukhtar Ablyazov, his long-time associate and henchman at the helm Zhaksylyk Zharimbetov, the bank’s former director of corporate banking Veronica Efimova as well as former chief executive officer Roman Solodchenko. According to local media, Mrs. Efimova has been detained in Moscow pending a Kazakh request for her extradition. If so, there is no end to coincidences. On August 27, a British court ruled to freeze the assets within British reach belonging to Ablyazov and his associates.

One would tend to wonder where all this is to end. Some have been inclined to point at Yertayev’s present-day position at Eurasian Bank, the property of the Eurasian Financial and Industrial Company. The latter controls, among other businesses Kazakhstan’s major-size metal and ore producer ENRC. It is the property, on a tripartite basis, of the country’s renowned industrial “troika” Patokh Chodiyev, Alexander Mashkevich and Alizhan Ibragimov. The three have been under investigation in the beginning of the current decade by Belgian authorities on charges of illegal financial manipulations – charges they have always staunchly denied.

There is little indication that “The Eurasian” has been involved in Kazakhstan’s financial turmoil so far. But Yertayev’s downfall, as some tend to imagine, could point at a pending “spread” of the government’s current correction campaign over the entire entrepreneurial elite. Local media as well as international publications have pointed at the possibility of infighting within the ruling elite of Kazakhstan over a mix of political and commercial interests. It reminds one of the Decembrist movement in Russia in the early XIXth Century. Only this time, the main driving forces are not army officers and high-brow intellectuals but business tycoons.

Meanwhile, while Eurasia Bank looks as healthy as ever except for low profits due to slumps in the global commodity market place, both BTA and Alliance Bank keep suffering from heavy losses (see table) at the expense of their equity, which during the second quarter of 2009 was not just eaten away but went far into the red figures. At the end of the first half of the current year, the two banks’ equity came close to minus half a trillion and minus a trillion, respectively, Kazakh tenge (1 euro is around 150 tenge and 1 US dollar in the order of 150 tenge), according to their financial reports issued in late August. With trouble in the market now turning into trouble with the law, the overall story is still a long way from its eventual outcome.

ALLIANCE, BTA, EURASIA FINANCE: KEY FIGURES IN THE FIRST QUARTER/FIRST HALF OF 2009
(amounts in billion Kazakh tenge)

item Alliance Bank BTA Eurasia Finance
authorised capital 101.238459/101.238459 516.597958/516.597958 15.110070/15.210124
domestic equity 143.936178/(469.608989) 367.337428/(890.290710) 27.935582/28.425538
assets 1195.492944/583.016636 3797.456800/2566.014572 298.910949/352.806875
net income (16.395836)/(631.109907) (261.547236)/(1518.395078) 0.057026/0.162627

source: KASE

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