Ablyazov files: proceedings shed more light on BTA fraud chains/III

In its latest verdict, the London Royal Court has not only confirmed the guilt of fraud and embezzlement of Kazakhstan’s fugitive former banker Mukhtar Ablyazov, the one-time head and majority shareholder of the country’s embattled BTA bank, now majority-owned by the state, but also  the co-guilt of two of his close associates. One of them, Zhasylyk Zharimbetov, who spent most of his life side by side with Ablyazov (including a period in prison), has also played a key role in the manner in which Ablyazov appropriated himself with the share of his late partner Tatishev following the latter’s mysterious death in a hunting accident (according to the official reading) in late 2004. Key to it all is what is known as the Drey affair, in which, in the words of Judge Teare’s latest ruling, Zharimbetow “knowingly assisted Mar. Ablyazov in committing fraud”.

BY CHARLES VAN DER LEEUW, WRITER, ANALYST

Ablyazov files: proceedings shed more light on BTA fraud chains/III“In 1992 Mr. Zharimbetov was introduced to Mr. Ablyazov by Mr. Tatishev (who later became the Chairman of the Bank),” the latest verdict by England’s Royal Court signed by Justice Teare reads. “He formed a business which traded with companies owned or controlled by Mr. Ablyazov and Mr. Tatishev. Between 1993 and 1996 Mr. Zharimbetov worked in a bank of which Mr. Ablyazov was deputy chairman of the board of directors. In 1996 Mr. Zharimbetov worked at a grain company in which Mr. Ablyazov and Mr. Tatishev were shareholders. Mr. Zharimbetov sold his interest in it in 2000 to Mr. Tatishev. Thereafter, when Mr. Ablyazov was head of the company operating the Kazakhstan Electric Grid, Mr. Zharimbetov joined that company. In about 2000 both Mr. Ablyazov and Mr. Zharimbetov were imprisoned by the authorities in Kazakhstan though Mr. Zharimbetov was never convicted of any offence. After his release he left Kazakhstan and lived and worked in Moscow.”

On December 1992, hardly more than a year after Kazakhstan proclaimed its independence and only weeks after (incomplete) legislation on the establishment of private enterprise had passed, Mukhtar Ablyazov registered his first company “Astana Holding”. Under its “ownership” affiliated enterprises were subsequently registered by the score, starting with Astana Holding Bank – one of the first of its kind to receive a private banking licence. Access to cash remained the main weak spot of Ablyazov and his associates, the latter of whom already included Roman Solodchenko, Zhaksylyk Zharimbetov and last but not least his longstanding friend and business partner Bahybek Bayseitov. On March 23 1998, the government, following years of long and laborious arm twisting over legislation, finally announced the privatisation tender for the combination of two former Soviet banks put on sale. These were Kazpromstroybank, the Kazakh branch of the former Soviet state bank for construction and infrastructure development, and Kazsneshekonombank, another former Soviet branch through which the earnings on Kazakhstan’s lucrative oil and metal exports used to be funneled to the all-Union treasury in exchange for credit for Kazakhstan’s imports from abroad. The two assets had already be renamed Turan Bank and Alem Bank respectively. Together with Bayseitov, Ablyazov through his Astana Holding Bank made a bid for both banks for the total sum of 72 million US dollar – and somehow (exactly how is not known) won the tender.

Following his dismissal as a state official, Ablyazov was accused of having embezzled a handsome pair of billions from state companies including Kazakhstan’s jewel in the crown, state company KEGOC. The allegations triggered his move to form an opposition party, dubbed Democratic Choice of Kazakhstan – probably in the hope that a seat in Parliament would offer him immunity from prosecution. Zharimbetov also joined the movement – most probably with the same intention. The party was bullied by loyalists in Kazakhstan’s political arena from the very beginning, which, unfortunately, gave Ablyazov enough ammunition to claim political martyrdom later. After having been convicted to six years behind bars, he obtained amnesty within less than a year in jail. He had to promise to stay out of politics, and did so by leaving the country for Moscow, from where he consolidated his previous career’s yield, before taking the helm of Bank TuranAlem.

“Upon Mr. Ablyazov’s release from prison in 2003 Mr. Zharimbetov sold his trading company in order to move to a coal mining business in Siberia at the request of Mr. Ablyazov. Finally, when Mr. Ablyazov became Chairman of the Bank Mr. Zharimbetov accepted office as a director and subsequently became First Deputy Chairman of the Management Board and Chairman of the Credit Committee. It would thus appear, at the very least, that Mr. Ablyazov was willing to place considerable trust in Mr. Zharimbetov’s abilities and that Mr. Zharimbetov was willing to work closely with Mr. Ablyazov. It does not appear that Mr. Zharimbetov held any position in the Bank whilst Mr. Tatishev was the Chairman of the Bank. Mr. Zharimbetov said that when he was offered a position in the Bank there were disputes between Mr. Ablyazov and the Tatishev family but that the latter was content for Mr. Zharimbetov to join the Bank “as a kind of compromise” between the Ablyazov and Tatishev interests. However, he said that he never had to get involved in any disputes between Mr. Ablyazov and the Tatishev family.”

Ablyazov had laid his hands on Temir Bank first and Bank TuranAlem later through a consortium of investors back in 1997 through a privatisation auction. As Ablyazov and consorts got into trouble following a political shake-up in 2002, Tatishev, Ablyazov’s partner in TuranAlem, agreed to serve as a temporary holder of Ablyazov’s stake in TuranAlem and affiliated companies. According to one of the most plausible theories regarding what was to follow, Ablyazov not only wanted his stake back in 2004 after he had been pardoned for earlier aberrations, but he wanted Tatishev to take part in what looks like a master scheme by Kazakhstan’s financial oligarchs to strip the country from the bulk of its financial resources altogether. It would never come to that, since Tatishev was killed in a hunting “accident” on December 19, 2004.

The Drey case, described earlier, found its origin in the death of Tatishev as part of Ablyazov’s successful attempt to appropriate himself with the stake to which the victim’s heirs were entitled – with the help of Zharimbetov as it now appears. “Mr. Zharimbetov had a role in hiding Mr. Ablyazov’s ownership of the Bank. Mr. Zharimbetov said in cross-examination that from the time of Mr. Tatishev’s death in 2004 the fact of Mr. Ablyazov’s interest in the Bank was ‘hidden from everybody’,” Judge Teare’s verdict reads. “Some shares in the Bank were owned by Drey. In October 2007 Mr. Stroud, one of the defendants in the Drey Action who is elderly and unwell and did not attend trial to defend himself, was asked by Mr. Udovenko to sign a document addressed to Ernst and Young, the Bank’s auditors, stating that he was the beneficial owner of Drey. Mr. Stroud was reluctant to do so because it was not the truth. Mr. Ablyazov was the beneficial owner of Drey as he has admitted. However, by 20 December 2007 Mr. Stroud was prepared to sign the document stating that he, Mr. Stroud, was the beneficial owner of Drey, thereby giving Ernst and Young false information. In February 2008 Mr. Stroud was asked to procure another signed letter in respect of Strident Energy, another shareholder in the Bank. The letter was to be signed by his son-in-law, Mr. Wilson, another defendant to the Drey action. Mr. Stroud was unwilling to ask Mr. Wilson to sign the letter because “we both know the true beneficial owner is Mukhtar.” 

In its report published on Aprl 12 2011 and quoted earlier, the Evening Standard referred to Drey Associates Ltd as “…a tiny firm based in Guildford apparently run by a British family but controlled by Ablyazov”. But in reality, the enterprise hid sums behind its modest profile that are a lot more impressive than its looks would suggest. “Anthony Stroud, 76, his schoolteacher daughter Sarah Wilson, and her husband, John, 47, were all directors of Drey Associates when Ablyazov transferred $295 million from BTA’s coffers to it in 2007,” the article read. “At the time, BTA told the Kazakhstan stock exchange that Drey Associates owned 9.8 per cent of the shares in BTA Bank, which were worth hundreds of millions of pounds. But according to documents registered at Companies House, the firm’s declared assets were worth just 46,000 pound in 2007 and 38,000 in 2008.” But the Drey affair stretches further, since the shadow company also played a key role in Ablyazov’s schemes to snatch majority shares in BTA’s Russian and Ukrainian subsidiaries for himself.

Again, Zharimbetov served as his right hand in the operation.“Mr. Zharimbetov was aware that Mr. Ablyazov owned or controlled the shareholders in the Target Banks. In his Closing Submissions Mr. Norbury accepted on behalf of Mr. Zharimbetov that he knew that Mr. Ablyazov was connected to the owners of the shares in the Target Banks and subsequently learned that Mr. Ablyazov was the ultimate beneficial owner of the shares in the Target Banks being purchased. […] Mr. Zharimbetov was a member of the Strategy Committee. He accepted that the Drey transactions had been devised by the Strategy Committee and so it is likely that he knew what was involved in the Drey transactions and that his knowledge was not ‘limited’. […] As Head of the Credit Committee Mr. Zharimbetov approved three loans of US$110m., US$115m. and US$75m. which were to be used to purchase new shares in the BTA Moscow in the name of other companies owned or controlled by Mr. Ablyazov. The loans were said to be for the purpose of replenishing the working capital of the borrowing companies but, as Mr. Zharimbetov knew, this was not the purpose of the loans. In addition he signed the three loan agreements.”

The last observation appears to be the key to the conclusion of Zharimbetov’s guilt. “The aim of the loans was to finance the acquisition of new shares in the BTA Moscow by other companies which were owned and controlled by Mr. Ablyazov and so prevent the Bank having a controlling interest in the BTA Moscow,” the text of the verdict continues. “These matters give rise to a powerful case that Mr. Zharimbetov, the third most powerful man in the Bank, must have appreciated that the Drey transactions were in reality a means by which the Bank’s money was extracted for the secret benefit of Mr. Ablyazov. In short, Mr. Zharimbetov was party to the plan devised by the Strategy Committee, he had been instrumental in keeping secret Mr. Ablyazov’s interest in Drey and he performed a leading role in the share dilution scheme. It can be inferred from those matters that Mr. Zharimbetov was well aware that Mr. Ablyazov was keeping his ownership of Drey (and, it seems likely, of the Target Banks) secret from the Board of Directors of the Bank with a view to benefitting personally from the transactions. […] The remaining question is whether, with [his] knowledge, Mr. Zharimbetov assisted Mr. Ablyazov to commit the Drey fraud. I am persuaded that he did. With regard to the three Target Banks he must, as a member of the Strategy Committee, have considered and approved the plan to acquire them using both the SPAs and the Compensation Agreements. He assisted Mr. Ablyazov in keeping his ownership of Drey secret. Further, with regard to BTA Moscow he must, as a member of the Strategy Committee, have also considered and approved the share dilution scheme. He assisted Mr. Ablyazov by approving and signing the loans which were to fund the share dilution scheme. With regard to BTA Belarus he also signed the Compensation Agreement and one of the SPAs. With regard to BTA Ukraine he also signed the Cancellation Agreements which purported to cancel the SPAs without, in circumstances where US$150m. had been paid under the Compensation Agreement, securing the return of that sum. For these reasons I find that that Mr. Zharimbetov knowingly assisted Mr. Ablyazov to commit the Drey fraud. There is no dispute as to his liability pursuant to Articles 62 and 63 of the JSC Law save for the point on shareholders’ approval with which I have already dealt.” (to be concluded)

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