Can Kazakhstan Shed Its Kleptocratic Past?

Fighting Graft in Almaty Will Also Test Western Anticorruption Commitments

In January, Kazakhstan was in chaos: mass protests against cor­rup­tion were spread­ing across the coun­try, prompt­ing its pres­i­dent, Kassym-Jomart Tokayev, to appeal to Russia to send peace­keep­ers from the Russian-led Collective Security Treaty Organization to help restore order. Today, how­ev­er, calm has returned to the streets of Almaty and oth­er major Kazakh cities. Now firm­ly in charge, Tokayev appears bent on demon­strat­ing to Kazakhstan’s long-suf­fer­ing cit­i­zens that, three decades after becom­ing inde­pen­dent from the Soviet Union, their coun­try is begin­ning a fresh chap­ter in its history.

Tokayev is purg­ing Kazakhstan’s gov­ern­ment of the influ­ence of his author­i­tar­i­an pre­de­ces­sor, Nursultan Nazarbayev, who retained sig­nif­i­cant clout in gov­ern­ment and the pri­vate sec­tor, even after resign­ing from the pres­i­den­cy in 2019. Members of Nazarbayev’s fam­i­ly have already been removed from top posts at Kazakhstan’s elec­tion com­mis­sion, its most influ­en­tial busi­ness lob­by­ing group, and its lead­ing oil and gas com­pa­nies. The head of Kazakh intelligence—Karim Masimov, Nazarbayev’s long­time polit­i­cal ally and two-time prime minister—has been arrest­ed on charges of trea­son. Tokayev has also announced a major audit and restruc­tur­ing of Kazakhstan’s sov­er­eign wealth fund, includ­ing new per­son­nel recruit­ing and pro­cure­ment pro­ce­dures intend­ed to dimin­ish crony­ism, which is believed to be val­ued at $69 bil­lion and to con­trol at least 55 per­cent of the country’s assets.

But Kazakhstan’s oli­garchic net­work extends well beyond its bor­ders. A 2019 KPMG report esti­mat­ed that the 162 rich­est Kazakhs con­trol ful­ly half of the country’s wealth, most of which is now held off­shore in Geneva, London, New York, Paris, and oth­er glob­al finan­cial cen­ters, beyond the reach of the Kazakh author­i­ties. In an address to his cab­i­net in ear­ly February, Tokayev ordered his gov­ern­ment to devise plans for repa­tri­at­ing these assets with­in two months. He also point­ed­ly not­ed the $5.7 bil­lion dis­crep­an­cy between China’s and Kazakhstan’s offi­cial report­ing on the vol­ume of trade between the two coun­tries, sug­gest­ing cross-bor­der smug­gling on a mas­sive scale. Importantly, Tokayev’s own cre­den­tials as a reformer remain in doubt, as a recent report by the Organized Crime and Corruption Reporting Project (OCCRP) also revealed that Tokayev and his fam­i­ly mem­bers them­selves had accu­mu­lat­ed sig­nif­i­cant wealth over­seas, includ­ing Swiss bank accounts, a UK-reg­is­tered com­pa­ny, and real estate hold­ings in Russia and Switzerland.

Even locat­ing these assets presents logis­ti­cal and legal chal­lenges that will take the Tokayev gov­ern­ment years, not months, to over­come. The for­mer rul­ing fam­i­ly and its enablers spent decades stash­ing ille­gal­ly acquired state funds over­seas, in prepa­ra­tion for just such a glob­al asset hunt. Most of the Nazarbayev clan’s vast off­shore hold­ings remain hid­den. Efforts to find and repa­tri­ate them will not only com­pli­cate Kazakhstan’s polit­i­cal tran­si­tion but also draw in Western lawyers, accoun­tants, and rep­u­ta­tion-man­age­ment firms—while chal­leng­ing Western gov­ern­ments to actu­al­ly imple­ment their glob­al anti­cor­rup­tion commitments.

A DEAL BETWEEN LEADERS

Soon after the January unrest had been sub­dued, Tokayev appeared to strike a deal with Nazarbayev. Throughout the cri­sis, Tokayev had blamed the per­sis­tent eco­nom­ic inequal­i­ty that drove many of the pro­test­ers focused on the Nazarbayev family’s cor­rup­tion. In his first pub­lic appear­ance after the demon­stra­tions, Nazarbayev denied any polit­i­cal rift with his suc­ces­sor, demure­ly claim­ing that he was just an ordi­nary pen­sion­er now, hop­ing for a qui­et retire­ment. In exchange for being allowed to retire in Kazakhstan, Nazarbayev sug­gest­ed, he has accept­ed Tokayev’s author­i­ty and with­drawn him­self and his inner cir­cle from posi­tions of polit­i­cal and eco­nom­ic influence.

There is a prob­lem with this appar­ent­ly peace­ful tran­si­tion pact, how­ev­er. Neither Tokayev, nor the min­istry of finance, nor the cen­tral bank, nor the pros­e­cu­tor general’s office knows the true extent of the Nazarbayevs’ glob­al hold­ings. As the scale and scope of the family’s off­shore finan­cial empire is even­tu­al­ly revealed, this pact is like­ly to be strained and even contested.

As John Heathershaw and I argued in our book, Dictators Without Borders, when Central Asian auto­crats con­sol­i­dat­ed pow­er in their home coun­tries in the 1990s, they took advan­tage of glob­al finan­cial lib­er­al­iza­tion and the rise of off­shore bank­ing and shell com­pa­nies to export the enor­mous for­tunes they amassed through the pri­va­ti­za­tion and acqui­si­tion of state-oper­at­ed assets. When some for­mer regime insid­ers became polit­i­cal oppo­nents and fled into exile, Central Asian gov­ern­ments pur­sued them and their for­tunes abroad. As a result, pow­er strug­gles in Kazakhstan and oth­er Central Asian coun­tries have for years been waged over­seas through for­eign arbi­tra­tion hear­ings in far-flung court­rooms, tips and doc­u­ment leaks to for­eign news­pa­pers, and aggres­sive pub­lic rela­tions campaigns. 

No one in the cur­rent Kazakh gov­ern­ment knows the true extent of the Nazarbayevs’ glob­al holdings.

In 2013, Forbes esti­mat­ed the for­tune of Nazarbayev’s eldest daugh­ter, Dariga Nazarbayeva, at $595 mil­lion. Nazarbayev’s mid­dle daugh­ter, Dinara Kulibayeva, and her hus­band, Timur Kulibayev, made the magazine’s bil­lion­aires list in 2021. The Nazarbayev daugh­ters’ for­tunes, like those of oth­er Kazakh oli­garchs, are dis­trib­uted glob­al­ly and often held in lux­u­ry real estate. A recent Chatham House report found that Kazakh oli­garchs own more than £500 mil­lion ($628 mil­lion) in cen­tral London real estate, most of it pur­chased via com­pa­nies reg­is­tered off­shore. Over £330 mil­lion ($414 mil­lion) of these properties—including the 221B Baker Street address made famous by its one­time fic­tion­al ten­ant, Sherlock Holmes—are believed to belong to the Nazarbayevs them­selves. In 2007, British media report­ed that Kulibayev had pur­chased the Duke of York’s Sunninghill estate for £15 mil­lion ($22 mil­lion). In 2020 a Radio Free Europe inves­ti­ga­tion iden­ti­fied over $250 mil­lion in prop­er­ty belong­ing to Nazarbayev fam­i­ly mem­bers in the Czech Republic, France, Spain, Switzerland, and the United States.

Investigations into the extent of Nazarbayev’s own hold­ings are just begin­ning to bear fruit. The OCCRP revealed in January that Nazarbayev per­son­al­ly con­trols four pri­vate foun­da­tions con­tain­ing a com­bined $8 bil­lion in assets—including for­eign bonds, region­al banks, tele­coms, shop­ping cen­ters, hotels, and even a pri­vate jet—all pur­chased through hold­ing com­pa­nies reg­is­tered in the United Kingdom and Luxembourg. One of these, the Nazarbayev Foundation, states that its pri­ma­ry pur­pose is to sup­port edu­ca­tion at Nazarbayev University, in Astana. Unlike most uni­ver­si­ty endow­ments, how­ev­er, the foun­da­tion does not pub­lish annu­al reports, lists no trustees, and pro­vides no infor­ma­tion on exter­nal dona­tions, though it has been infused with bil­lions in state cap­i­tal. Despite their non­prof­it sta­tus, the report observes, these foun­da­tions “actu­al­ly own larg­er busi­ness port­fo­lios than many multi­na­tion­al conglomerates.”

In the 1990s, Nazarbayev was found to be the recip­i­ent of a series of bribes fun­neled via a net­work of Swiss bank accounts on behalf of major Western oil com­pa­nies. In 2013, a Wall Street Journal inves­ti­ga­tion impli­cat­ed Kulibayev in a kick­back scan­dal involv­ing the China National Petroleum Corporation’s acqui­si­tion of a por­tion of a Kazakh state ener­gy com­pa­ny. In 2020, the Financial Times pub­lished a series of doc­u­ments reveal­ing Kulibayev’s com­plex and high­ly lucra­tive manip­u­la­tion of inter­me­di­ary com­pa­nies involved in the con­struc­tion of the China-Central Asia pipeline. And a pre­vi­ous OCCRP inves­ti­ga­tion found that two wealthy Nazarbayev cronies had fun­neled $30 mil­lion via off­shore net­works to Nazarbayev’s unof­fi­cial third wife, Assel Kurmanbayeva.

Ironically, as Tokayev pre­pares to wage a glob­al cam­paign to reclaim Kazakhstan’s stolen wealth, he will like­ly draw on his government’s expe­ri­ences pur­su­ing exiled polit­i­cal dis­si­dents and regime insid­ers-turned-whistle­blow­ers. These include an aggres­sive cam­paign against Nazarbayev’s for­mer son-in-law, Rakhat Aliyev, who died under mys­te­ri­ous cir­cum­stances in an Austrian jail in 2015 while await­ing extra­di­tion to Kazakhstan. Similarly, the Kazakh gov­ern­ment has spent hun­dreds of mil­lions pur­su­ing the glob­al hold­ings of Mukhtar Ablyazov, a for­mer chair of Kazakhstan’s BTA Bank who even­tu­al­ly became an exiled oppo­si­tion leader. According to Kazakh author­i­ties, Ablyazov embez­zled bil­lions before flee­ing Kazakhstan for polit­i­cal asy­lum in France.

The Kazakh government’s pur­suit of Ablyazov sparked glob­al out­rage in 2013 when Italian police seized Ablyazov’s wife and six-year-old daugh­ter from their home in Rome and returned them to Kazakhstan on a pri­vate jet under the watch­ful eye of the Kazakh ambassador—an oper­a­tion that a group of UN experts lat­er char­ac­ter­ized as an “extra­or­di­nary ren­di­tion.”  Whether the strate­gies Kazakhstan uses to root out the Nazarbayevs’ glob­al finan­cial hold­ings ulti­mate­ly involve such tac­tics remains to be seen. They will cer­tain­ly be com­plex, expen­sive efforts involv­ing dozens of lawyers, foren­sic accoun­tants, inves­ti­ga­tors, and pub­lic rela­tions spe­cial­ists. If they fail, or sim­ply drag on, the Nazarbayevs will be all too aware that few parts of the world are safe from the long arm of the Kazakh state and the secu­ri­ty ser­vices they helped create.

WESTERN ANTICORRUPTION EFFORTS

For the United States and the United Kingdom, which have expe­ri­ence han­dling cor­rup­tion alle­ga­tions involv­ing Kazakhstan’s rul­ing elite, the Tokayev government’s bat­tle to recov­er the country’s stolen wealth pro­vides an oppor­tu­ni­ty to test the effec­tive­ness of their new anti­cor­rup­tion initiatives.

In December 2021, the Biden admin­is­tra­tion unveiled a new strat­e­gy for fight­ing cor­rup­tion, which it had repeat­ed­ly iden­ti­fied as a nation­al secu­ri­ty pri­or­i­ty for the United States. The strat­e­gy is notable in that it tar­gets both for­eign klep­to­crats and their American enablers who use their pro­fes­sion­al exper­tise to assist with the laun­der­ing of mon­ey and rep­u­ta­tions. But the pol­i­cy itself gives lit­tle guid­ance as to how, oper­a­tional­ly, anti­cor­rup­tion efforts can be inte­grat­ed into for­eign pol­i­cy plan­ning, espe­cial­ly when con­fronting the thorny issue of one auto­crat­ic gov­ern­ment going after for­mer auto­crat­ic elites.

Anticorruption inter­ven­tions over­seas can have pro­found polit­i­cal con­se­quences for the coun­tries involved.

This is a dif­fer­ent prob­lem than the attempts to inter­fere in sen­si­tive anti­cor­rup­tion inves­ti­ga­tions that U.S. offi­cials have con­front­ed with depress­ing reg­u­lar­i­ty. In 2000, the U.S. Department of Justice began inves­ti­gat­ing James Giffen, an American busi­ness­man who served as Nazarbayev’s eco­nom­ic advis­er, for alleged­ly fun­nel­ing mil­lions in pay­ments from American oil com­pa­nies into Swiss bank accounts on behalf of Kazakh offi­cials. Despite Nazarbayev’s per­sis­tent lob­by­ing, the George W. Bush admin­is­tra­tion, much to its cred­it, refused to inter­fere in the case. The Department of Justice arrest­ed Giffen in 2003 and charged him with bribery. (Ultimately, Giffen escaped with a small fine after the pre­sid­ing judge accept­ed his claims that he had act­ed in Kazakhstan on behalf of U.S. gov­ern­ment interests.)

The task at hand, as Kazakhstan launch­es a glob­al effort to recov­er its stolen assets, is trick­i­er. The com­ing chal­lenge for the United States will be about how to inte­grate work on new anti­cor­rup­tion direc­tives with work on oth­er U.S. for­eign pol­i­cy goals. By sanc­tion­ing or pur­su­ing the Nazarbayev family’s over­seas assets, the United States may be demon­strat­ing its com­mit­ment to fight­ing cor­rup­tion, but it would be doing so in sup­port of a Kazakh gov­ern­ment whose com­mit­ment to polit­i­cal reform it can­not yet ful­ly trust.

Anticorruption inter­ven­tions over­seas can have pro­found polit­i­cal con­se­quences for the coun­tries involved. Over the last decade, for exam­ple, three inter­na­tion­al telecom­mu­ni­ca­tions firms oper­at­ing in Uzbekistan have been fined by the U.S. Securities and Exchange Commission for attempt­ing to bribe Gulnara Karimova, the pow­er­ful daugh­ter of for­mer President Islam Karimov, in their quest for access to the country’s lucra­tive cell phone mar­ket. The fines and glob­al inves­ti­ga­tions proved high­ly dam­ag­ing to Karimova polit­i­cal­ly, lead­ing to the Uzbek government’s arrest of Karimova and her asso­ciates in Uzbekistan. U.S. offi­cials con­sid­er­ing action to repa­tri­ate Kazakh gov­ern­ment assets should take steps to ensure that the Tokayev gov­ern­ment will trans­par­ent­ly deposit the funds in an ear­marked account that can be ded­i­cat­ed to sup­port­ing Kazakhstan’s fledg­ling civ­il society—including its anti­cor­rup­tion watch­dogs and inves­tiga­tive journalists—and anti­cor­rup­tion edu­ca­tion­al pro­grams and train­ing for civ­il servants.

The United Kingdom has also intro­duced sev­er­al new anti­cor­rup­tion tools that could speed the repa­tri­a­tion of Kazakhstan’s stolen assets. Last year, Dariga Nazarbayeva suc­cess­ful­ly fought an unex­plained wealth order by the United Kingdom’s National Crime Agency, which had frozen over £80 mil­lion ($100 mil­lion) worth of lux­u­ry prop­er­ties she owned. In decid­ing the case in her favor, the British judge argued that Kazakhstan’s pros­e­cu­tor general’s office had backed Nazarbayeva’s claim that the ori­gins of her wealth were not improp­er. A change in the Kazakh government’s pos­ture toward Nazarbayev fam­i­ly mem­bers and asso­ciates could make the out­come of sim­i­lar future actions quite different.

LONGTIME WESTERN ENABLERS

The for­mer Kazakh pres­i­dent spent years obsess­ing over his over­seas rep­u­ta­tion and spent sig­nif­i­cant sums on bur­nish­ing his image abroad. Reputable Western insti­tu­tions will­ing­ly pro­mot­ed the nar­ra­tive that Nazarbayev was a skill­ful stew­ard of Kazakhstan’s inde­pen­dence and sov­er­eign­ty. Most con­ced­ed pri­vate­ly that he was an auto­crat, but the “soft author­i­tar­i­an­ism” asso­ci­at­ed with Nazarbayev’s cos­mopoli­tan pub­lic image was then con­sid­ered the price for main­tain­ing polit­i­cal sta­bil­i­ty and friend­ly relations.

The range of Western actors com­plic­it in build­ing the myth of Nazarbayev is long: Western think tanks grate­ful­ly accept­ed mil­lions in Kazakh fund­ing, held events that cel­e­brat­ed U.S.-Kazakh rela­tions, and down­played the regime’s poor human rights record. Administrators at pres­ti­gious uni­ver­si­ties were hap­py to forge high-pro­file part­ner­ships with Nazarbayev University with­out ques­tion­ing the ori­gins or opaque gov­er­nance of the foun­da­tion that fund­ed them. The Kazakh gov­ern­ment suc­cess­ful­ly retained high-priced U.S. and European lob­by­ists and advis­ers to project an image of an enlight­ened despo­tism that aspired to ensur­ing polit­i­cal sta­bil­i­ty with some open­ness to the world.

In Kazakhstan, pop­u­lar dis­con­tent with the government’s lack of reforms con­tin­ues to sim­mer. Tokayev’s turn to Russia for peace­keep­ers appears to have left him uncom­fort­ably indebt­ed to Russian President Vladimir Putin. The war in Ukraine has forced Kazakh offi­cials into an uneasy neutrality—avoiding con­dem­na­tion of Putin’s inva­sion in pub­lic and in United Nations votes, but send­ing human­i­tar­i­an aid to Ukraine. Tokayev resist­ed Russian pres­sures to send troops, yet Kazakh offi­cials are alarmed about the impact of Western sanc­tions. One sur­vey of Kazakh pub­lic atti­tudes found back­ing for Russia’s inva­sion of Ukraine­—the like­ly result of Russian state media coverage—with anoth­er sug­gest­ing con­sid­er­ably more sup­port for Russia’s war aims to pro­tect the Donbas among Kazakhstan’s small­er self-iden­ti­fied Russian pop­u­la­tion than among the 70 per­cent who claim a Kazakh eth­nic iden­ti­ty, rais­ing the prospect that the country’s own inter­nal eth­nic bal­ance could become a geopo­lit­i­cal fault line. The glob­al cam­paign to reclaim Kazakh wealth and rid Kazakh insti­tu­tions of Nazarbayev’s influ­ence is under­way, but it is like­ly to impli­cate a greater and more var­ied group of inter­na­tion­al actors than even the most impas­sioned crit­ics of Nazarbayev could ever have imagined.

Original source of arti­cle: www.foreignaffairs.com