Corruption in Kazakhstan’s Rotten Telecoms

On September 19th, Radio Free Europe pub­lished an item titled Nazarbaev’s Nephew Goes On Trial In Astana.  The Nazarbayev in ques­tion is Kazakhstan’s for­mer President Nursultan Nazarbayev (pic­tured), and my inter­est picked up when I realised that some of the charges of fraud and embez­zle­ment relat­ed to Kazakhtelecom.  However, I wasn’t pre­pared for the sheer vol­ume of infor­ma­tion I would find. This arti­cle just scratch­es the surface.

The Press Report

Radio Free Europe reports that Nazarbayev’s nephew, Kairat Satybaldy (or Quirt Satybaldyuly), was arrest­ed in ear­ly March while try­ing to board a plane head­ing to Turkey; his tri­al opened in a dis­trict court in Astana on September 19th.

In June, President Qasym-Zhomart Toqaev said he had cre­at­ed a com­mis­sion to “return cash ille­gal­ly tak­en out of Kazakhstan” by “a nar­row cir­cle of peo­ple who had ille­gal­ly tak­en over the larg­er por­tion of the country’s wealth.”  And then in August, Kazakhstan’s Anti-Corruption Agency said that Satybaldy and four oth­er unnamed indi­vid­u­als were sus­pect­ed of embez­zling an unspec­i­fied amount of mon­ey from the Kazakhtelecom and Transport Service Center com­pa­nies.  The agency also said that USD500mn had been returned to the state trea­sury and 29 per­cent of Kazakhtelecom’s shares (mar­ket cap­i­tal­i­sa­tion USD652mn), which had been con­trolled by Satybaldy, were put back under state control.

The news arti­cle didn’t pro­vide details of the frauds, but if President Toqaev’s com­mis­sion was able to recov­er USD690mn, I def­i­nite­ly want­ed to know more.  I didn’t have to wait long because, on September 26th, an update told us that Satybaldy plead­ed guilty to all charges and has been sen­tenced to 6 years imprisonment.

Background

Kazakhtelecom is Kazakhstan’s largest tel­co and is 51% owned by the state.  It has a monop­oly on land­line con­tracts and it holds stakes in most of the country’s mobile phone oper­a­tors. Kairat Satybaldy is the nephew of Nursultan Nazarbaev, who was Prime Minister of the Kazakh Soviet Socialist Republic from 1984, and then served as Kazakhstan’s first President from inde­pen­dence in 1991 to his res­ig­na­tion in 2019.  According to Forbes:

Often described as the son Nazarbayev nev­er had, Satybaldy is a lead­ing fig­ure in the rul­ing Nur Otan Party, and a mem­ber of the country’s busi­ness and polit­i­cal elite.

Online sources show that Satybaldy worked in the National Security Service from 1991 to 1998.  After this he per­formed numer­ous roles, includ­ing deputy may­or of Astana, Vice-President of the nation­al com­pa­ny Kazakh Oil, Vice-President of Kazakhstan Railways and Secretary of the Nur Otan Party. In May 2016, The Independent not­ed that:

Another for­mer bureau­crat, for­mer Secretary General of the rul­ing Nur Otan par­ty, Kairat Satybaldy, left gov­ern­ment to become chair­man of Alatau Capital Invest, which teamed up with Baring Vostok to put mon­ey into sev­er­al projects in the bank­ing sector.

And in November 2016, it was announced that Alatau Capital Invest had acquired 3.4% of the shares of Kazakhtelecom – so there’s the con­nec­tion.  According to Forbes in 2018, Kairat Satybaldy owned assets of USD163mn and was among the 50 rich­est busi­ness­men in Kazakhstan.

Unpeeling the Onion

As a start­ing point, I tried to find the source of Satybaldy’s Kazakhtelecom shares.  Media reports in April 2022 stat­ed that, fol­low­ing his arrest, Satybaldy’s com­pa­ny Skyline Investment Company trans­ferred more than 2,600,000 Kazakhtelecom shares to state own­er­ship, and Alatau Capital Invest trans­ferred a fur­ther 400,000. Previous media cov­er­age reports that the shares held by Skyline Investment had been obtained from anoth­er of the rich­est busi­ness­men in Kazakhstan, Alexander Klebanov.

According to the Astana Times, in July 2016, Klebanov held the Kazakhtelecom shares in his com­pa­ny Sobrio Ltd, hav­ing trans­ferred them from his Netherlands based com­pa­nies Bodam B.V. and Deran Services B.V. Forbes told a slight­ly dif­fer­ent story:

Recall that BODAM BV and DERAN SERVICES BV are owned by Aigul Nuriyeva (also Nurieva) , who ranks 8th in the Forbes Kazakstan rank­ing of the 50 rich­est busi­ness­men in Kazakhstan – 2016

A pos­si­ble expla­na­tion was sup­plied in March 2018 by kz.expert, which says that Klebanov acquired Bodam and Deran Services from Aigul Nuriyeva.  It also claims to have inside infor­ma­tion that Klebanov is act­ing as a front for the President’s old­est daugh­ter, Dariga Nazarbaeva, who was an MP in the state par­lia­ment at the time.

A 2008 US Government cable that was leaked to Wikileaks pro­vides use­ful insight about Aigul Nuriyeva.  The cable was prompt­ed by a Wall Street Journal arti­cle which is enti­tled “Kazakhstan Corruption: Exile Alleges New Details,” and relies heav­i­ly on an inter­view with, and doc­u­ments pro­vid­ed, by ex-Nazarbayev son-in-law Rakhat Aliyev, the sole named source. He claimed that Nazarbayev holds vast hid­den own­er­ship stakes in var­i­ous Kazakhstani indus­tries, takes illic­it com­mis­sions from firms doing large-scale busi­ness in Kazakhstan, and con­trols a large net­work of off-shore bank accounts.  With regard to Aigul Nuriyeva, the cable states:

Immediately after the arti­cle was pub­lished on July 22, Prime Minister Masimov called in the Ambassador for a tete-a-tete to dis­cuss it just pri­or to Masimov’s sched­uled meet­ing with vis­it­ing Special Envoy for Eurasian Energy Issues Boyden Gray. Masimov not­ed that the arti­cle claims that he is a co-own­er of a Singapore-based com­pa­ny togeth­er with a Kazakhstani banker named Aigul Nuriyeva who, accord­ing to the arti­cle, helps man­age the Nazarbayev fam­i­ly finances. Masimov explained to the Ambassador that his share in this com­pa­ny is not a secret, as the asset is list­ed on his finan­cial dis­clo­sure forms.

This sug­gests Aigul Nuriyeva was in part­ner­ship with the Prime Minister whilst man­ag­ing the President’s fam­i­ly assets.  So when Nuriyeva sells Kazakhtelecom shares to Klebanov, who is the real buy­er and who is the real seller?

Bad Connections for Telia and Tele2

Kazakhtelecom’s his­to­ry became even mud­di­er when I came across a fas­ci­nat­ing piece of work by Thomas Mayne, Leila N. Seiitbek, Fatima Kanji and Eryn K. Schornick called “Bad Connection: Corruption in Kazakh Telecoms”.  Bad Connection looked at the his­to­ry of Kazakhtelecom’s rela­tion­ships with Swedish com­pa­nies Telia Company AB in Kcell and Tele2 AB in Tele2.

Kazakhstan’s tele­coms indus­try is dom­i­nat­ed by key fig­ures from the polit­i­cal elite. It is high­ly like­ly that such indi­vid­u­als have abused their posi­tions of state pow­er to make mon­ey in the pri­vate tele­coms sec­tor, includ­ing through the deals high­light­ed in this report.

It goes on to draw par­al­lels between the cir­cum­stances of the Kazakhstan deals and those done in Uzbekistan, where, hav­ing admit­ted cor­rup­tion, Telia reached an agree­ment with the US Department of Justice and paid USD 965mn in penal­ties. Relating to Kazakhstan, Bad Connection says:

Telia bought a 49% stake in Kcell from Kazakhtelecom for USD1.52bn in 2012, which was major­i­ty owned by the Kazakh gov­ern­ment but had over 20% of the com­pa­ny owned by opaque com­pa­nies with pos­si­ble ties to Kazakh gov­ern­ment offi­cials. A few months lat­er, a share offer­ing val­ued the com­pa­ny at up to 75% less than the price Telia bought for its shares. In 2018, Telia sold its 75% stake in Kcell for USD446mn — USD1bn less than what it paid for just 49% of the com­pa­ny six years ago.

They went on to observe:

In com­par­i­son, Telia’s rival in Kazakhstan Tele2 AB made efforts to mit­i­gate the risk of deal­ing with Nuriyeva by pub­lish­ing reports on the due dili­gence it had per­formed in Kazakhstan, and get­ting Nuriyeva to sign var­i­ous doc­u­ments con­firm­ing she was the ulti­mate own­er and not work­ing on behalf of any Kazakh politicians.

In fair­ness to Telia, it had com­mis­sioned inter­na­tion­al law firm Norton Rose Fulbright to con­duct an exter­nal review cov­er­ing Nepal, Kazakhstan, Azerbaijan, Tajikistan, and Georgia. Reuters reports Chairwoman Maria Ehrling telling Telia’s April 2014 AGM:

The board can unfor­tu­nate­ly say that sev­er­al trans­ac­tions and prac­tices have not been han­dled in accor­dance with good busi­ness prac­tice,” Ehrling told share­hold­ers at the company’s annu­al gen­er­al meet­ing. “It can­not be exclud­ed that cer­tain actions have been criminal.

Independent news organ­i­sa­tion eurasianet reports Ehrling’s com­ments on areas of con­cern including:

“sub­stan­tial pay­ments to advi­sors and inter­me­di­aries for, among oth­er things, lob­by­ing activ­i­ties; lack of con­trol of busi­ness part­ners; and inad­e­quate han­dling of warn­ing signs.”

“One area sin­gled out is the inad­e­quate gov­er­nance of the Eurasian oper­a­tions,” Ehrling said. Risk assess­ment had been inad­e­quate “from an eth­i­cal and legal per­spec­tive,” she added. TeliaSonera had failed to ensure “suf­fi­cient exper­tise and knowl­edge to act appro­pri­ate­ly in the very dif­fi­cult and com­plex busi­ness envi­ron­ment in Eurasia, where polit­i­cal risk is con­sid­ered to be high and cor­rup­tion is widespread,”

It’s our opin­ion that we are as trans­par­ent as pos­si­ble with regards to the cir­cum­stances and also by con­tin­u­ous­ly hand­ing over infor­ma­tion to the Swedish pros­e­cu­tor,” she said, and it was up to the courts to assess the legal­i­ty of any transactions.

By October 2014, Swedish news­pa­per SvD Näringsliv was expos­ing a new secret report which warns that Tele2 is coop­er­at­ing with cor­rupt peo­ple in Kazakhstan.

As ear­ly as December, the tele­phone oper­a­tor may be forced to pay bil­lions to a woman accused of being a front for the Kazakh regime.

The sto­ry also high­lights Telia’s con­cern about Kazakhstan, which was suf­fi­cient for it to refuse to dis­charge the for­mer CEO from legal liability.

When Telia Sonera’s own­ers this spring chose not to grant the for­mer CEO Lars Nyberg dis­charge from lia­bil­i­ty, it was pri­mar­i­ly with ref­er­ence to the company’s oper­a­tions in Kazakhstan – and above all the deal­ings with Aigul Nurieva, a 39-year-old woman who has been accused of being a man­ag­er of the for­tunes of the Kazakh regime.

But Telia is not the only Swedish tele­com com­pa­ny that has had busi­ness with Nurieva. A clas­si­fied report that SvD Näringsliv has seen shows that Tele2’s coop­er­a­tion with her is even deep­er than Telia’s. The report, com­mis­sioned by one of Tele2’s own­ers, also high­lights sev­er­al red flags for cor­rup­tion with­in Tele2’s Kazakh operations.

Bad Connections is a fas­ci­nat­ing read which you can access here.

How do Kazakhtelecom deals look from the outside?

Kazakhstan anti-cor­rup­tion sanc­tions were debat­ed in the UK House of Commons in February 2022.  The record of the debate in Hansard fea­tures all the major play­ers named above and the var­i­ous alle­ga­tions include a state­ment that Alexander Klebanov and his son Yakov act as finan­cial prox­ies for the for­mer president’s fam­i­ly, and are thought to have helped Dariga Nazarbayeva to avoid an unex­plained wealth order in the UK. It also refers to Kazakhtelecom, although not by name:

Aidan Karibzhanov is accused by his for­mer wife of hav­ing prof­it­ed from his posi­tion as a banker by sell­ing the Kazakhstan nation­al tele­coms com­pa­ny and, I quote, “pri­va­ti­za­tion of pub­lic assets result­ing in huge prof­its to polit­i­cal­ly con­nect­ed insid­ers at the expense of the state”.

In the US, in 2022, the Coalition of Civil Society of Kazakhstan has been lob­by­ing Congressman Bennie Thompson to write to the Attorney General in order to stop mem­bers of the Kazakh gov­ern­ment from assist­ing the Russians in cir­cum­vent­ing Ukraine sanc­tions.  This draft let­ter asks for trav­el bans and sanc­tions to be applied against near­ly 30 peo­ple; in addi­tion to the Nazarbayev fam­i­ly, the list includ­ed names that fea­tured in the Kazakhtelecom deals: Aigul Nuriveya, Alexander Klebanov and Kairat Satybaldy.

And back to the present

You can be for­giv­en if you’d for­got­ten that all these alle­ga­tions and rev­e­la­tions start­ed with a report about Kairat Satybaldy embez­zling mon­ey from Kazakhtelecom.

The wealth of detailed alle­ga­tions I found about Kazakh cor­rup­tion made a stark con­trast to Satybaldy’s case.  The new rul­ing regime has arrest­ed, pros­e­cut­ed and repa­tri­at­ed assets, but pub­lished no infor­ma­tion about the ori­gin of Satybaldy’s shares or the fraud and embez­zle­ment to which he has admit­ted.  That’s not nor­mal.  So I’m won­der­ing why it’s been kept qui­et and whether the real sto­ry will ever come to light.

If you ever need to con­vince any­one about the ben­e­fits of research and due dili­gence, Kazakhtelecom is the gift the keeps on giving…

Author: David Morrow

Original arti­cle: KOMMSRISK