The Ablyazov files’ Kyrgyz dimensions: first hole in the network should reveal more

While dropping all charges against the son of the ousted Presdient of Kyrgyzstan Maxim Bakiyev, US authorities have nevertheless frozen his assets in America on suspicion of their illegal origin. This, and the pending verdict against one of the latter’s most outstanding associates Eugene Gourevitch who has pleaded guilty on charges of insider dealing, using funds the origin of which can also be believed in the embezzlement of cash and assets under the Bakiyev regime, could shed light on the way the bank of Mukhtar Ablyazov has been able to lay its hands on what was to become BTA’s Kyrgyz subsidiary back in 2007. Tens of millions in US dollar are thought to have slipped in the course of the operation into the pockets of Bakiyev, one-time PM of Kyrgyzstan Danyar Usenov and could well have been used in the USA, Italy and elsewhere to secure the bounties gathered by the former golden boys of Bishkek.

BY CHARLES VAN DER LEEUW, WRITER, NEWS ANALYST

31.03.14 opinions The Ablyazov files’ Kyrgyz dimensions first hole in the network should reveal moreBTA, then still largely known as Bank TuranAlem, had been buying into Kyrgyzstan’s banking business by taking over the latter’s Ineximbank for a sum below the equivalent of 50 million US dollar – a remarkable cheap deal even for an undersized and undercapitalised economy such as that of Kyrgyzstan unless, as could well be assumed, there has been a kickback which would connect the Ablyazov cases directly to those concerning Maxim Bakiyev and his associates. In late December 2007, a delegation led by the then all-powerful president of BTA Mukhtar Ablyazov on a visit to Bishkek where he met President Bakiyev, PM Danyar Usenov and a number of other top officials promised an extra capital injection for his bank’s Kyrgyz subsidiary in the order of $70 million, the local news agency the time. At stake were a number of real estate projects, a new cement factory under construction, coal mines, transportation infrastructure and power generation facilities, food industry projects and a fund meant to grant soft credits to small and medium enterprise in Kyrgyzstan.

Danyar Usenov had been reported as of 2007 to have a direct stake in Ineximbank, which was about to merge with BTA through a share swap, which as it is thought left Usenov with 15.6 per cent of the new tandem, renamed BTA Kyrgyzstan, enabling him to put his son Marat on the board on his behalf. Usenov also shared stakes in a number of privatised former state enterprises, in particular in the construction sector but also in a number of coal mines, with Maxim Bakiyev. The latter’s control over AUB can be supposed to have enabled the couple to shift loan collateral away from the grip of the original creditor, namely BTA, leaving the latter’s cash loans uncovered. Hundreds of millions of US dollar and billions of roubles have thus slipped into “invisible pockets”. For Kyrgyzstan, this is a huge bait, which to a large extent explains the frantic and bloody manner in which Maxim and his gang has tried to clinch to power. Part of the stolen money is believed to have been used to buy into Ineximbank, and part if not all of the money paid to purchase the latter by BTA under Ablyazov’s wings can be assumed to have been funneled away into Bakiyev jr.’s and Usenov’s offshore networks.

A central tool for the operation appears to have been the Asia Universal Bank (AUB), believed to have been controlled by Bakiyev’s son Maxim. “One [case] involves the younger Mr. Bakiyev’s relationship with Asia Universal Bank, a Kyrgyz bank that was advised by U.S. consultants APCO Worldwide and Kroll Associates and whose board members included three former U.S. senators,” a report in the Wall Street Journal dated June 15 2010 [http://online.wsj.com/news/articles/SB10001424052748704324304575306580442236878] was to read. “Prosecutors allege that the younger Mr. Bakiyev steered to AUB part of a $300 million Russian state loan to Kyrgyzstan, and personally benefitted from it, the spokesman said. Critics of the Kyrgyz government were suspicious of Maxim Bakiyev’s relationship with AUB, which under his father’s rule grew from a little-known bank to the country’s most influential financial institution. AUB shuffled a large amount of money out of the country when the government collapsed. On the night of the coup, April 7, officials at AUB approved international wire transfers that they say were requested by AUB clients totalling about $170 million, or more than 10% of the country’s banking assets, according to central bank officials.”

“A U.S. criminal securities fraud case against Maxim Bakiyev, the son of former Kyrgyzstan leader Kurmanbek Bakiyev, has been dismissed, prosecutors said, without giving an explanation,” Bloomberg reported on May 9 last year. “The U.S. had sought to extradite the younger Bakiyev, 35, from the U.K. to face trial on charges of conspiracy to commit securities fraud and obstruction of justice. Dismissal of the case was confirmed today by Robert Nardoza, a spokesman for U.S. Attorney Loretta Lynch in Brooklyn, New York. He declined to comment further. Maxim Bakiyev, who headed a development agency in Kyrgyzstan, has been living in the U.K. since fleeing the Central Asian nation after an April 2010 coup. An extradition hearing was to begin May 13 in the U.K. It is no longer required, said Tim McAtackney, a spokesman for the U.K.’s Crown Prosecution Service. Maxim Bakiyev wasn’t named publicly in U.S. court filings.”

By mid-July last year, though, better news came out. “The US has frozen assets worth $74.4m belonging to Maxim Bakiyev, son of former Kyrgyz President Kurmanbek Bakiyev, Business New Europe reported on July 18 last year [http://www.bne.eu/story5204] quoting “government officials in Bishkek”  “While the US authorities – which dropped an attempt to extradite Bakiyev in May – have not confirmed the claim, Russian daily Kommersant on July 17 quoted Kyrgyz Economy Minister Temir Sariyev as saying that three US bank accounts have been frozen. The accounts contained $60m, $9m and $5.4m respectively, the official told the newspaper. According to Kyrgyz officials, the cash comes from stocks and income from commercial banks, and was illegally taken out of Kyrgyzstan. However, without comment from US officials, the reasons behind the freeze of the accounts are unclear. The US treasury department and the attorney’s office of New York refused to comment on the case.” Nothing has been heard of the measure taken by the Americans – nor is it known whether or not it is still in force.

There has been of late, though, some breaking news on the man who played a key role in Bakiyev’s schemes and whose case, once a pending US verdict is to become public, could lead not just to the origins of the frozen assets but also to the role Ablyazov must have played in their abuses. “A former financial adviser to ousted leaders of Kyrgyzstan who was accused of obstructing a U.S. insider-trading probe pleaded guilty to wire fraud,” Bloomberg reported on February 16 this year [http://www.bloomberg.com/news/2013-05-09/u-s-case-ends-against-ex-kyrgyz-leader-bakiyev-s-son.html] quoting the culprit’s lawyer. “Eugene Gourevitch entered his plea yesterday in federal court in Brooklyn, New York, his lawyer, Marc Agnifilo, said in a phone interview. Gourevitch, scheduled for sentencing on June 10, faces a prison term of as long as 20 years, Agnifilo said. The plea couldn’t immediately be verified in court records.   Gourevitch was charged in an indictment unsealed in October with one count of conspiracy and one count of obstructing justice in a U.S. Securities and Exchange Commission civil case brought over trading in shares of Global Industries Ltd., a Sulphur, Louisiana-based oil-field construction company.”

Like his patrons, Gourevitch made a narrow escape at the latter’s overthrow in spring 2010. “His head swayed from side to side as he struggled to stay awake in the backseat of a car smuggling him out of Kyrgyzstan,” a recent review of the affair in Foreign Affairs [http://www.foreignaffairs.com/articles/140233/philip-shishkin/kyrgyzstans-most-wanted] based on the book “Restless Valley: Revolution, Murder, and Intrigue in the Heart of Central Asia” by Philip Shishkin, published by Yale University Press, which includes material from a personal interview by the author with the culprit, reads. “Gourevitch was so ill that he didn’t even notice when the car rattled across the border into neighboring Kazakhstan. At least, that is where he hoped he was headed. He had to trust his escorts, a pair of shadowy Chechen operatives who had made him a simple offer: They would smuggle him out of the country, but it was going to cost him. Exactly how much would be determined later. Gourevitch wasn’t in a position to haggle. He had to save himself from the revolutionaries who were on the prowl for the former regime’s associates, particularly those with knowledge of financial operations of ousted President Kurmanbek Bakiyev and his entourage. And Gourevitch was at the top of that list.”

Things looked bleak indeed for Gourevich who with his protectors on the run found himself trapped in Bishkek. “Having gotten his family out, he spent four days pacing around his rented Bishkek apartment pondering how to escape from the country where he’d been a chauffeured princeling only two months earlier,” Schishkin continues. “This is where the mysterious Chechens found him. Gourevitch suspects they were tipped off by his old security detail. The good thing about the Chechens was they had no ulterior motives, no political vendettas, and no righteous fury about Gourevitch’s past. They were interested only in his money. That was also the bad thing about the Chechens. So off to Kazakhstan they went, using smugglers’ trails that avoided any official checkpoints. Once they reached Almaty, Gourevitch was presented with the bill: $20 million. Still running a high fever, Gourevitch thought he was hearing things. But the Chechens weren’t kidding. […] Gourevitch told the Chechens that all he had was $600,000 in an AUB bank account – all of which was now worthless. Gourevitch also had a brokerage account in another bank with $400,000 in it. The Chechens made him call his banker to confirm that figure while they listened in. They took all of it and Gourevitch’s passport, and let him go. Stranded in Almaty without documents or money, Gourevitch went where traveling Americans in trouble have gone before: the U.S. consulate.” He then already hoped to play his “Italian card” meaning surrender to the US authorities pending an extradition demand from Italy on charges of abuse of funds and money laundering. But the consulate showed no interest, gave him a new passport and sent him out – broke, that is. Help, however, came from his one-time partner in better days – namely Maxim Bakiyev who had found refuge in London. “As ruthless as he was toward his enemies, Maxim could also be loyal to those he deemed useful, and Gourevitch assumed he fell into that category. As it would soon become clear, Maxim did have very lucrative reasons to keep Gourevitch safe and free, so he spirited him out of Kazakhstan. The destination was Belarus. […] Landing in Minsk, Gourevitch fell off the international law-enforcement grid.”

The “Italian” connection only reached the public domain in early 2011. “Rome Judge Aldo Morgigni has issued an arrest warrant for US citizen Eugene Gourevitch, the Director of MGN Capital financial group and de facto the key international consultant of Kyrgyz President Bakiev’s family,” Ferghana.ru wrote in an in-depth background article [http://enews.fergananews.com/news.php?id=1606] on the affair which it published on March 10 2011, quoting the San Francisco Chronicle. “Few months ago MGN Capital was selected through tender procedure by Kyrgyzstan’s Development Fund as the financial consultant and asset manager. Some sources indicate that Bakiev’s government transferred $300 million of Russian credit money to be managed by Gourevitch. MGN also provided consulting service for privatisation of state-owned OJSC Severelectro and OJSC Kyrgyztelecom.”

“In early September 2011, investigators at the U.S. Securities and Exchange Commission (SEC) noticed that something strange was happening to the shares of Global Industries, Ltd., a small Louisiana company building offshore oil rigs and pipelines in the Gulf of Mexico,” Shishkin relates. “One day that month, someone working through a brokerage account at an Austrian bank scooped up $1.5 million in Global shares, accounting for about one-tenth of the company’s entire trading volume on the Nasdaq exchange. The same buyer came back for more the next morning, purchasing another $2 million of Global’s stock, again about one-tenth of the daily volume. The mystery buyer clearly knew something that the rest of the market did not, a piece of intelligence that was poised to lift Global’s shares out of small-cap obscurity and make them much more valuable. The suspense lasted for three days until a French firm announced its acquisition of Global Industries at a steep premium to its share price. The mystery buyer promptly sold Global stock at a profit of $1.7 million. The trades carried the fingerprints of a classic insider-trading scheme, but the SEC sleuths couldn’t identify the ultimate beneficiary. They did manage to freeze the proceeds of the final stock dump, rendering the profit illusory. In London, Maxim Bakiyev was furious, for it was his money.”

“His” money? America’s authorities should have known better – and in the end preferred to ignore the cash’s origin altogether. “Cooling his heels in London after the revolution that ended his family’s grip on Kyrgyzstan,” in Shishkin’s words, “Maxim had not wasted any time in trying to multiply his fortune. Through a shell company registered in New Zealand, he set up a Latvian bank account stuffed with $45 million worth of securities, according to U.S. court documents. With Maxim’s blessing, Gourevitch used the account for insider trading, applying ‘edge’ information furnished by Tayyib Ali Munir, the London broker, who gleaned his investing tips from a network of well-connected sources, including a former director of the New York Stock Exchange. […] Gourevitch and Maxim botched a perfect insider trade by letting greed cloud their judgment and buying so many shares that the SEC took notice and froze the transactions. Since Gourevitch was broadcasting the whole scheme in real time straight to the FBI, Munir was arrested and charged with insider trading. He pleaded guilty in October 2012. […] That same October, Maxim was arrested in London on a U.S. warrant seeking his extradition to the United States on charges of conspiracy to commit securities fraud. Months later, U.S. prosecutors quietly dropped the charges against Maxim.”

It remains yet to be seen in how far Kyrgyzstan, and in particular minority shareholders and deposit holders in AUB who lost a lot of money can recuperate the stolen funds. Also in relation to Ablyazov’s role in the complex embezzlement schemes carried out by Maxim Bakiyev and Eugene Gourevich many questions remain open. Only recently BTA regained its ownership rights in its Kyrgyz subsidiary when a Bishkek court declared Maxim’s and Usenov’s ownership rights void. Recently, BTA in its present-day composure recuperated the ownership rights of BTA Kyrgyzstan from Ablyazov’s offshore network. Today, a merger between BTA and its new majority owner Kazkommertsbank is in the making, entitling the latter to clinch a compensation deal with the government of Kyrgyzstan and allow the state a fair share in any recuperated funds and assets hidden abroad as far as they used to have a stake in them. Proceedings in this direction, however, can be expected to have a long haul and meet numerous complications in the process.

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