ANTI CORRUPTION

BNY Mellon freezes $22.6 billion in Kazakh oil fund assets

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Bank of New York Mellon (BK.N) has frozen $22.6 bil­lion in assets held by Kazakhstan’s National Fund in a rare move that esca­lates a legal bat­tle between the gov­ern­ment and a Moldovan investor.

Moldova’s Anatolie Stati and his com­pa­nies ear­li­er won dam­ages against the Kazakh gov­ern­ment and his pur­suit of pay­ment has lead to some 40 per­cent of the oil rev­enue-sup­port­ed fund being frozen.

Details of the asset freeze, which took place in October, were report­ed by Reuters on Thursday and were sub­se­quent­ly dis­closed at a court hear­ing in Britain.

It’s pret­ty unprece­dent­ed,” said Simon Quijano-Evans, an invest­ment strate­gist at Legal & General Investment Management in London. “If 40 per­cent of a sov­er­eign fund is frozen and you don’t have access to it, that should be an alarm bell for pol­i­cy­mak­ers.”

Kazakhstan’s dol­lar bonds fell after the news while its tenge KZT= cur­ren­cy strength­ened by 0.6 per­cent.

Theoretically (the fund) is a nation­al insti­tu­tion so it should cause a rethink for cen­tral banks and sov­er­eign wealth funds as it’s been assumed so far that these assets were rel­a­tive­ly immune,” said Quijano-Evans.

ENERGY INVESTMENTS

At the heart of the case is a years-long legal row between busi­ness­man Stati, his son Gabriel, two fam­i­ly-con­trolled com­pa­nies and the Kazakh gov­ern­ment of President Nursultan Nazarbayev.

They invest­ed in Kazakhstan’s oil and gas indus­try and have assert­ed that they were sub­ject­ed to sig­nif­i­cant harass­ment from the state aimed at forc­ing them to sell their invest­ments cheap­ly.

Kazakhstan denies the alle­ga­tions, but Anatolie and Gabriel Stati and two of their com­pa­nies – Ascom Group S.A. and Terra Raf Trans Traiding Ltd., won an inter­na­tion­al arbi­tra­tion award of around $500 mil­lion against the gov­ern­ment.

BK.NNew York Stock Exchange

It has refused to pay, how­ev­er, and in October Kazakhstan filed a civ­il rack­e­teer­ing law­suit in the U.S. District Court in Washington, D.C., against the Statis and their two firms.

The cen­tral bank, the National Bank, also filed a law­suit against BNY Mellon chal­leng­ing the asset freeze. However, the claim was dis­missed by a judge in London on Thursday.

A spokes­woman for the Bank of New York Mellon declined to com­ment. Kazakhstan’s jus­tice min­istry could not be reached for com­ment.

The freez­ing of the assets comes weeks after President Nazarbayev threat­ened to sack his cab­i­net if they failed to make large state com­pa­nies bring back cash held abroad.

Nazarbayev, who wields sweep­ing pow­ers in the oil-rich nation, poured scorn on pri­vate sec­tor exec­u­tives who, he sug­gest­ed, were enjoy­ing lav­ish lifestyles while keep­ing funds in for­eign accounts.

Additional report­ing by Mariya Gordeyeva and Olzhas Ayuezov in Almaty and Sujata Rao-Coverly and Ben Martin in London; writ­ing by Olzhas Ayuezov, Dmitry Solovyov and John O’Donnell; edit­ing by Katya Golubkova, Jason Neely, Greg Mahlich

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