Trial Against Unrepenting Ablyazov And Repenting Cronies Draws To A Close, Case To Remain Open

More than a month-and-a-half of daily court hearings in Almaty have confirmed, and enriched, the 2,200-sections case file accompanied by a 500-page file containing the charges against former banker and notorious swindler Mukhtar Ablyazov and a number of his accomplices. The proceedings took place in his absence. Since his scandalous liberation in France, where he had been held for three years pending the eventuality of his extradition either to the Russian Federation and Ukraine, which were the main locations where he converted diverted funds belonging to his bank BTA into tangible assets under his personal control, and where penal proceedings against him have also started. Prosecutors have demanded 20 years of firm imprisonment for the main culprit and milder sentences for those who used to carry out his orders but later cooperated with the authorities. A verdict, most likely to be confirmative, is expected before the middle of June.

ch1

by Charles van der Leeuw, writer, news analyst

“Ablyazov threatened, bullied, castigated people and set them up against one another. He used carrots and sticks. All people at the bank knew that Ablyazov’s word was law, no questions asked. He exercised control over everything and everybody. He actively abused me, set me up against the Tashiyev brothers (Ablyazov’s fellow BTA-shareholders until he usurped the entire ownership). I admit that I have committed wrongdoings. I was forced to commit them under Ablyazov’s orders, but I committed them all the same.”

Those were the words of BTA subordinate Zhaksylyk Zharimbetov, as quoted by the Kazakh state news agency Kazinform posted in late April by the newsreel Nomad.su. Zharimbetov, whose relation with Ablyazov goes way back in time when the latter was still cabinet minister and had not yet acquired full ownership of BTA. He used to work for Yerlan Tatishev, but became subordinate to Ablyazov after the former’s death in December 2004 during a “hunting accident” according to police.

“After what happened in 2009, Kairat Sadykhov [another Tatishev manager – ChvdL] who had fled to Ukraine, as well as other ‘fugitives’ continued to receive monthly wages of $10,000 each, plus compensation for housing and other costs of living,” Zharibetov told the court. “It was done on the insistence of Mukhtar Ablyazov, who feared that some of the ‘fugitives’ would turn into whistle-blowers – Ablyazov used to call them ‘monkeys with hand grenades’. This situation continued until the end of 2012.”

“Three former top managers of the bank, ex-Chairman of the Board Saduakas Mamesh, former First Deputy Chairman of the Board Zhaksylyk Zharimbetov and ex-Director for Lending Issues Kairat Sadykov are in the dock. Ablyazov is being tried in absentia,” Novosti wrote in a report posted shortly after the trial’s opening. “On Monday, prosecutors read indictment claiming that Ablyazov had organised a criminal group to embezzle BTA Bank’s funds. According to prosecution, companies controlled by Ablyazov purchased the bank’s shares on money from loans illegally received from the bank. Therefore, Ablyazov and his accomplices ‘increased the bank stock’. The increase in the bank’s capital gave the appearance of BTA Bank’s success and enticed investors and depositors, prosecutors believe. As reported earlier, the total amount of damage caused exceeded $7.5 billion.

Zharimbetov pleaded guilty to charges, while Sadykov and Mamesh pleaded guilty in part.” Western news media have categorically (and deliberately?) ignored the entire trial so far, and are likely to continue the cover-up till the end.

“Capitalisation” – plain theft

During the trial, Mamesh who worked in BTA until late summer 2009 when he left for Singapore “to study”, came up with a number of technical details regarding the fraud master scheme. According to the defendant, Ablyazov had started his operation to appropriate himself with the bank as early as 1998, when he grabbed all the preferred stock in BTA by paying off the state to the amount of $72 million. As it appears now, he had borrowed the money with the very same stock as collateral. But the operation, though illicit and probably illegal, left Ablyazov with all preferred stock in the bank and half of its voting shares.

This situation lasted until early 2005, shortly after Tatishev’s “accident”, Mamesh related in court. From there on, things began to stir. Only months later Ablyazov started to issue new packages of preferred stock. Using the same trick, he managed to sell them, representing 25 per cent of BTA’s preferred paper, to a consortium that included Austria’s Raifeissenbank, the European Bank for Reconstruction and Development, the International Monetary Fund’s subsidiary International Finance Corporation and a number of “German and Dutch investment agencies” the names of which Mamesh did not mention. Alongside, Ablyazov sold stock at its nominal value to companies “affiliated” with BTA but not BTA’s property. Since the stock’s market value was “much higher” in Mamesh’s words, the bank was left with their nominal cash and the profit on them went into Ablyazov’s web. Ablyazov, as Mamesh recalled, dubbed it “capitalisation”. In fact, it was plain theft.

Initially, fund diversion took place through two subsidiaries of BTA, named Makta Aral and Makta Aral-2. Both were registered in Shymkent, in Kazakhstan’s deep south where Ablyazov originates from. The firms had no address. Director was a certain Nurgali Berkinbayev, an old friend of the Tatishev family who from 2005 on fell under Ablyazov’s fist, and was “forced to sign documents for sales and purchases of securities,” as he told the Almaty court where he appeared as a witness at the ongoing trial. The companies had no office. I was the sole director. Orders came directly from Ablyazov. Value indications of the securities bought and sold were fiction, and added nothing to BTA’s asset value.”

Stolen funds “processed”in The Netherlands

Still, Ablyazov must have deemed that too much of his scheme was carried out too close to home. He therefore created a number of “affiliated” enterprises, all based abroad. Such enterprises could be given loans and credit lines circumventing screening and assessing proceedings by the bank’s credit committee. However, they were free to pass the money entrusted to them to third parties, and even then it remained transferrable including collateral (if there was any). Two of them were based in the same office (see list below) in Rotterdam, 30-34 Schouwburgplein, close to the city’s central railway station. According to Kazakh prosecutors, in particular Turan Alem Finance BV, both directly and through its subsidiary Turan Alem Securities BV, must have “processed” stolen funds to an amount topping 4 billion greenbacks between 2004 and 2009, till both firms defaulted on debt services in summer 2009, with Ablyazov high and dry in London and the Kazakh state property fund having inherited a virtually bankrupt BTA.

LIST OF INSTRUMENTAL FUND DEVIATION AFILLIATES CREATED BY ABLYAZOV

# Legal name of subsidiary Place of registration BTA interest
1. Теmir Capital B.V. Schouwburgplein 30-34, 3012 CL, Postbus 21153, 3001AD, Rotterdam, The Netherlands 100%
2. BTA Finance Luxembourg SA, an affiliated company of JSC BTA Bank 46 A, Avenue J.F. Kennedy, L-1855, Luxembourg 86.11%
3. Turan Alem Finance B.V. 3012 CL Rotterdam, The Netherlands Schouwburgplein 30-34 100%
4. ООО “Dochernyaya organizatsiya АО “BTA Bank” “TuranAlem Finance”” 129110, Russian Federation, Moscow, pr. Mira, 62, stroyeniye 1 100%
5. BTA DPR Finance Company P.O. Box 1093 GT, Boundary Hall, Cricket Square, George Town, Grand Cayman
A subsidiary without interest, control due to inclusion of the subsidiary’s financial reports into BTA’s financial reports as per auditors’ report.
subsidiary (control)
6. ООО “BTA Finance” 129110, Russian Federation, Moscow, pr. Mira, 62, stroyeniye 1 100%

Source: BTA

It was in neighbouring Kyrgyzstan where the Dutch connection fell through first. On 15 September 2009, a private-held fund based in Bishkek and called Investment Holding Co. lost (in appeal) a local court case which would have entitled it to sell a bond package with a deemed par value of 28.4 million Sterling. The bonds, with a nominal value that had been put at 200 million pound when they were first placed back in 2006, had been purchased in June 2009 by IHC’s broker Central Asian Holding. The present owner claims that the broker had been instructed to purchase “reliable” bonds, but bought junk instead, since BTA-Kyrgyzstan’s parent company in Kazakhstan had slipped into default in April that year.

Curiously enough, the nominal issuer of the bonds TuranAlem Finance BV, based in Rotterdam, The Netherlands, also fell into default shortly after the verdict. IHC was ordered by the court to return the bonds to BTA-Kazakhstan, which was supposed to bear “ultimate” responsibility for payments of interest and lump-sum of the bonds, which were due to mature as of December 21 2009. This meant that IHC’s money was likely to disappear into the $10.3 billion abyss of unpaid debt by BTA, but entitled to receive value in paper once the overall debt should be settled. Both BTA-Kyrgyzstan and Dutch TAF were declared liability-free in the pursuit of the money for the bonds.

Fund recovery attempts stranded

In how far ongoing proceedings in Almaty will bring stolen funds back to now derelict BTA, owned by its former rival Kazkommertsbank controlled by tycoon Kenes Rakishev, rmains questionable. Rakishev is in negotiations with another rival, Halyk Savings Bank, for a takeover but Halyk refuses to include BTA in the deal,with the result that the state will probably forced to take it back. A freezing order imposed by an English court of law has brought in less than a hundred million dollar so far, and it does not look as though multi-billion amounts will ever be recoveredsince Mukhtar Ablyazov, now at large, is free to reshape his offshore network entirely, this time thought to be operating from Paris.

In the Russian Federation, wherecharges against Ablyazov and a number of his cronies have also been filed, prospects look slightly better. “The developer of the construction project Marin Gardens oceanarium in Moscow has filed 633 billion rouble (about $11 billion) lawsuit against Facebook Trading Limited company registered in Cyprus,” Russia’s judicial journal RAPSI wrote in a report posted on April 20 this year and citing court records. “The lawsuit reached the Moscow Commercial Court on April 11 and was not commenced because of improper formalization. Marin Gardens asks the court to recover debt from the defendant in this case. The plaintiff has earlier been controlled by former owner of Kazakh BTA Bank Mukhtar Ablyazov and the defendant is also related to the ex-banker. The Moscow Commercial Court declared Marin Gardens bankrupt in October 2016. The company’s debt was nearly as high as 8.2 billion rouble (about $146.4 million), almost all of it was owed to BTA Bank. According to the case documents, Marin Gardens has granted a $99.4 million loan to Facebook Trading Limited just a day after receiving $99 million from Legendcatch Services Limited. In 2010, the Moscow Commercial Court noted that most of the funds were not used for construction but were transferred to various offshore companies under the guise of using them for investments. This guise was allegedly created specifically for the main creditor, BTA Bank. The court stated that Facebook Trading Limited is owned by Ablyazov. In early 2000s, Moscow authorities leased a large plot of land to Marin Gardens for the construction of the oceanarium. The opening of the object, then called the largest in Eastern Europe, was planned for 2009. The project, however, has never been implemented, and at the moment its completion rate is evaluated at around 16%.”

Laws show gaping mazes

The list of offences hanging over Ablyazov and his associates has been considerably longer, while the amounts involved grew ever bigger and bigger as investigations on various locations progressed. Forgery is widely considered by detectives to be among the weak spots in diversion schemes. Diversion of collateral, which could also be dubbed asset-kidnapping, is meant to prevent banks from liquidating assets belonging to persons or entities sliding into default on loan or credit repayment. In cases of default, under standard fiscal legislation, tax authorities have the first right to get their claims materialised. Since loan repayments are tax-deductible, this seldom occurs except in cases the diversion scheme has included tax evasion as well. The issuer of the credit comes next. In the case of a loan, the purpose of the loan is usually defined in the loan contract, whereas credit lines are much more flexible in terms of spending them.

Moreover, loans can only be transferrable with permission from the original issuer, which in the case of credit lines is not necessarily so. In any case of credit transfer to a new beneficiary, the bank will only give its permission to do so if it maintains its grip on the collateral. In most countries, the law obliges it to make sure that it will. Tax havens, however, tend to have no such laws. Finally, if the issuer is not based in the country where the borrower is operator and transactions take place in third countries, laws show gaping mazes and borrowed money can be transferred without bothering over liquidation rights whatsoever. This makes operations like that under Ablyazov’s control horribly legal – except in case those havens within EU jurisdiction obey to the conditions included in the Lugano Accord, which obliges prosecutors of signatory states to act if cases of embezzlement, money laundering and related offences pop up. Neither England, nor Luxemburg nor The Netherlands have lived up to those conditions.

Share