Is the Uzbek government embracing the risks of money laundering?

Professor Kristian Lasslett of the Corruption and Human Rights Initiative (CHRI) con­duct­ed a damming inves­ti­ga­tion into one of the largest infra­struc­ture projects in Uzbekistan’s cap­i­tal, Tashkent dubbed ‘Tashkent City’.

The inves­ti­ga­tion into the $1.3 bil­lion project unrav­elled the ben­e­fi­cial own­ers, com­plex com­pa­ny struc­tures and severe con­flicts of inter­est asso­ci­at­ed with a num­ber of lots led by com­pa­nies asso­ci­at­ed with Akfa Group owned by Tashkent may­or Jahongir Artikhodjaev, one of Uzbekistan’s wealth­i­est busi­ness­man. The project has also been marred by alle­ga­tions of sus­pi­cious award ten­der­ing and fraud charges against a Kazakh busi­ness­man asso­ci­at­ed with the project for 1 bil­lion Kazakh tenge (€2.4 million).

Since the pub­li­ca­tion, the may­or of Tashkent has been forced to con­vene a press con­fer­ence and respond to con­cerns of con­flict of inter­est and per­son­al patron­age relat­ing to his com­pa­ny and his office as may­or of Tashkent. He con­firmed he had dis­as­so­ci­at­ed him­self from the over­see­ing the man­age­ment of the com­pa­ny, though as the inves­ti­ga­tion point­ed out, he still owned the com­pa­ny, was deriv­ing mon­e­tary gain and had a finan­cial inter­est in its success.

Professor Lasslett adds, “that Artikhodjaev has no involve­ment in the day-to-day man­age­ment of these com­pa­nies is irrel­e­vant. If it was dis­cov­ered he employed his posi­tion in gov­ern­ment to cur­ry favour for a firm in which he has a ben­e­fi­cial stake, this would be cor­rup­tion by any definition”.

Only four days after the pub­li­ca­tion of this inves­ti­ga­tion, the Uzbek Finance Ministry pub­licly announced that the OECD had upgrad­ed Uzbekistan’s cred­it rat­ing from 6 to 5. This indi­cat­ed improve­ment in the Uzbekistan’s cred­it risks, despite such stark evi­dence to chal­lenge this. Laziz Kudratov, the Uzbek deputy chair of the State Committee for Investments who attend­ed the press-con­fer­ence reject­ed the need for pub­lic dis­clo­sure of ben­e­fi­cial own­ers of com­pa­nies invest­ing in Uzbekistan, thus embrac­ing risk of mon­ey laun­der­ing and de fac­to invit­ing orga­nized crime to wash their assets in Uzbekistan. He added,

“invest­ments come from abroad, in this case it is a German com­pa­ny [Hyper Partners GmbH, a com­pa­ny reg­is­tered in Germany with no infor­ma­tion of its ben­e­fi­cial own­ers], and they pass through the bank­ing sys­tem as a source of funds from Germany. By law, we have no right to request addi­tion­al infor­ma­tion about the founders. We set con­di­tions for investors to invest, take legal oblig­a­tions to imple­ment the project, sign doc­u­ments, and they can work… We had nego­ti­a­tions with more than 700 com­pa­nies, it was very dif­fi­cult to find investors who would believe in this project. Therefore, when we received such an offer from a German com­pa­ny, we said: ‘Welcome’”.

However, one of the lead­ing experts on anti-cor­rup­tion, Richard Messick high­lightedin his recent blog, that Uzbekistan does have a law that requires a rig­or­ous check of ben­e­fi­cial own­ers of com­pa­nies enter­ing its mar­kets. Article 7 of the law “On Anti-Money Laundering and Terrorist Financing”, adopt­ed in 2004, but updat­ed in January 2019, requires rel­e­vant state and pri­vate enti­ties to take due dili­gence mea­sures, including:

• ver­i­fi­ca­tion of the iden­ti­ty and cre­den­tials of the cus­tomer and per­sons on whose behalf it is act­ing on the basis of the rel­e­vant documents;
• iden­ti­fi­ca­tion of the own­er of, or the per­son exer­cis­ing con­trol over, the cor­po­rate cus­tomer by study­ing the own­er­ship and man­age­ment struc­ture in the con­stituent documents;
• an ongo­ing study of the busi­ness rela­tion­ships and trans­ac­tions with funds or oth­er assets car­ried out by the cus­tomer in order to ensure their con­sis­ten­cy with the customer’s pro­file and its activities.

The state­ments made by all three offi­cials: Mr. Kudratov, Mr. Gulyamov and Mr. Artikhodjaev at the press-con­fer­ence were entire­ly mis­lead­ing and con­tra­dic­to­ry to Uzbekistan’s nation­al laws and its inter­na­tion­al com­mit­ments, includ­ing its com­mit­ment on the UN Convention Against Corruption, of which Uzbekistan is a signatory.

Given this posi­tion was pub­licly artic­u­lat­ed by a top Uzbek offi­cial, CHRI express­es its con­cerns that the Gulnara Karimova assets frozen in a num­ber of juris­dic­tions, if returned direct­ly to the gov­ern­ment of Uzbekistan, can­not be guar­an­teed a safe dis­burse­ment. Similar to the ‘Tashkent City’ inves­ti­ga­tion, there remains a high risk the assets would be ori­en­tat­ed towards ingra­ti­at­ing exist­ing patron­age sys­tems in Uzbekistan; and that funds would dis­ap­pear off­shore through opaque con­tracts – a prac­tice well-estab­lished in Uzbekistan. In our view, a safer pas­sage for the repa­tri­a­tion of assets can only take place if the gov­ern­ment of Uzbekistan con­demns the prac­tice of con­tract­ing com­pa­nies with obscure ben­e­fi­cial own­er­ship, and imple­ments sound anti-mon­ey laun­der­ing and anti-cor­rup­tion poli­cies in line with the Uzbek CSO frame­work for return.

See also: https://www.opendemocracy.net/od-russia/kristian-lasslett/you-should-know-where-money-s-coming-from-response-to-mayor-of-tashkent

By Fatima Kanji

Is the Uzbek gov­ern­ment embrac­ing the risks of mon­ey laundering?