Not just Russian oligarchs: Britain must block Kazakhstan’s kleptocrats from securing a safe haven

Long syn­ony­mous with Sherlock Holmes, the build­ing at 221B Baker Street in London now rep­re­sents a trag­ic irony: The fic­tion­al crime-fighter’s address has been linked to the klep­to­crat­ic regime of Nursultan Nazarbayev, the de fac­to author­i­tar­i­an ruler of Kazakhstan from 1990 until recent­ly. His first daugh­ter, Dariga, has been report­ed as own­ing this prop­er­ty and a sig­nif­i­cant num­ber of oth­er London res­i­dences. (Dariga Nazarbayeva, through an attor­ney, declined to com­ment when asked about this.)

While London has long looked the oth­er way at these kinds of invest­ments, the polit­i­cal land­scape in Britain has dra­mat­i­cal­ly shift­ed fol­low­ing the Russian inva­sion of Ukraine. Now that the British pub­lic and gov­ern­ment have become more aware of the scale of off­shoring from post-Soviet coun­tries, there is a strong chance to extend some of the reg­u­la­to­ry reforms direct­ed towards Russian oli­garchs to also apply to the Nazarbayev family.

Nazarbayev’s fam­i­ly and his patron­age net­work have an exten­sive­ly report­ed his­to­ry of off­shoring wealth, espe­cial­ly into Britain, which per­mit­ted this prac­tice. According to a December 2021 report by Chatham House on post-Soviet klep­toc­ra­cies and their off­shoring meth­ods in Britain, the authoritarian’s fam­i­ly alone already owns at least $446 mil­lion worth of prop­er­ty there—and that could be “the tip of a very large ice­berg,” researchers say, since so much prop­er­ty was acquired through off­shore companies. 

Now, though, as Nazarbayev loy­al­ists are chased out of Kazakhstan amid an appar­ent purge by the new­ly con­sol­i­dat­ed regime of President Kassym-Jomart Tokayev, a flood of klep­to­crat­ic wealth may start surg­ing into British and oth­er off­shore accounts very soon, if it hasn’t already. Britain remains unaware of, and unpre­pared for, this development—but its out­sized pres­ence in the Nazarbayev regime’s off­shoring net­works means it has the pow­er to pre­empt these finan­cial flows, as well as the oppor­tu­ni­ty to lead the transat­lantic com­mu­ni­ty in craft­ing a proac­tive and broad response.

A furtive flow

While Britain has tak­en some steps to curb Russian off­shoring since the start of the Russian inva­sion of Ukraine, includ­ing promis­es to cre­ate a klep­toc­ra­cy cell in the National Crime Agency, lit­tle equiv­a­lent action has been tak­en against oth­er sources of off­shoring, includ­ing Kazakhstan. Notably, invest­ment funds and sim­i­lar pri­vate cor­po­rate vehi­cles have played an increas­ing­ly promi­nent role in off­shoring efforts from Kazakhstan.

For instance, with the help of these cor­po­rate vehi­cles, Nazarbayev’s youngest daugh­ter, Aliya Nazarbayeva, is report­ed to have moved $300 mil­lion out of Kazakhstan in 2006 through a spend­ing spree in London, which includ­ed a pri­vate jet and a $12.5 mil­lion mansion. 

According to the Chatham House report, much of the UK-based prop­er­ty owned by Nazarbayev’s fam­i­ly and close asso­ciates was acquired through firms based in the British Virgin Islands (although at least one was based in Luxembourg and anoth­er in Liechtenstein). All of these juris­dic­tions have long attract­ed atten­tion for their lack of trans­paren­cy and com­pli­ance with anti-mon­ey-laun­der­ing mea­sures. The scale of the incom­ing off­shoring surge will like­ly be in the bil­lions of dol­lars: Nazarbayev alone report­ed­ly con­trols at least $7.8 bil­lion con­cen­trat­ed in char­i­ta­ble orga­ni­za­tions based in Kazakhstan. While Nazarbayev him­self does not offi­cial­ly own these foun­da­tions, under Kazakhstani law he has ulti­mate con­trol over their assets because he found­ed them. 

The only cur­rent bar­ri­er to this oncom­ing wave is a 2010 Kazakhstani law that grant­ed Nazarbayev the title “Leader of the Nation” and pro­vid­ed him legal immu­ni­ty from pros­e­cu­tion for any actions com­mit­ted while he was in office. It also pre­vents the state from seiz­ing prop­er­ty owned by him and his fam­i­ly, and allows them to keep their bank­ing doc­u­ments secret.

However, Tokayev has already start­ed purg­ing Nazarbayev’s old patron­age net­work and announced the estab­lish­ment of a pub­lic fund to which he demand­ed that Nazarbayev-era busi­ness­men con­tribute. He has also begun direct­ly restrict­ing the finan­cial activ­i­ties of the Nazarbayev family—such as by end­ing a gov­ern­ment con­tract with a waste-man­age­ment com­pa­ny linked to Aliya Nazarbayeva. The com­pa­ny, Operator ROP, which once enjoyed a monop­oly in Kazakhstan, was fur­ther hit when the company’s chair­man was arrest­ed. Nazarbayev’s nephew was also arrest­ed recent­ly, and it’s like­ly that Kazakhstan’s rub­ber-stamp par­lia­ment will revoke the 2010 law to pave the way to direct­ly seiz­ing Nazarbayev fam­i­ly wealth.

Cracking down on dirty cash

But Tokayev’s purge of the for­mer Nazarbayev regime has not yet intensified—giving transat­lantic author­i­ties, par­tic­u­lar­ly those in the United Kingdom, crit­i­cal time to pre­pare for the influx of cash. This is espe­cial­ly cru­cial now that there is momen­tum for crack­ing down on off­shoring in Britain fol­low­ing the new sanc­tions actions tak­en against Russian oli­garchs. Even short­ly before the inva­sion, Member of Parliament Margaret Hodge sug­gest­ed that the UK Parliament is con­sid­er­ing plac­ing sanc­tions on Kazakhstani bil­lion­aires in Nazarbayev’s inner circle.

First, British law enforce­ment agen­cies should exe­cute the new pow­ers afford­ed to them under the new eco­nom­ic crime bill just passed by Parliament, but this can only hap­pen if they have more resources. Anti-cor­rup­tion mea­sures in Britain have con­sis­tent­ly been under-enforced despite hav­ing robust leg­is­la­tion because law enforce­ment is “under-resourced, over-stretched, and out-gunned,” accord­ing to the non­prof­it Spotlight on Corruption.

Secondly, the British gov­ern­ment needs to fol­low up on its com­mit­ment to pass anoth­er eco­nom­ic crime bill. A sec­ond bill needs to address the usage of Unexplained Wealth Orders (UWOs), which empow­er author­i­ties to seize the assets of a per­son believed to have crim­i­nal con­nec­tions if the per­son can­not prove those assets were acquired legit­i­mate­ly. Although the first bill already expand­ed the poten­tial scope of UWOs to cov­er poten­tial asso­ciates of peo­ple with unex­plained wealth, oth­er changes are nec­es­sary. British think tank RUSI iden­ti­fied exper­tise, inter-agency coop­er­a­tion, resources, and polit­i­cal will as essen­tial for UWOs to be most effec­tive, and a fol­low-up bill must account for this.

As Kazakhstani klep­to­crats demon­strat­ed by report­ed­ly flee­ing the coun­try in their pri­vate jets amid January’s wide­spread protests, the lax finan­cial reg­u­la­tions that ben­e­fit­ted Russian oli­garchs and helped build Vladimir Putin’s war chest can be exploit­ed by oth­ers. Therefore, there is a real secu­ri­ty threat to con­tin­u­ing to turn a blind eye to the threat of transna­tion­al corruption.

Given Britain’s sta­tus as the off­shore haven on which the for­mer Nazarbayev regime has relied, it should take advan­tage of the cur­rent anti-cor­rup­tion polit­i­cal momen­tum to both reverse this trend and lead by exam­ple in deal­ing with this illic­it patron­age net­work. It is not too late for British offi­cials to ensure account­abil­i­ty and warn any oth­ers con­sid­er­ing laun­der­ing their ill-got­ten gains that their mon­ey is no good here.

Francis Shin is a research assis­tant in the Atlantic Council’s Europe Center focus­ing on anti-mon­ey laun­der­ing and coun­ter­ing klep­toc­ra­cy. Previously he was a research assis­tant at the Future of Financial Intelligence Sharing pro­gram, a research part­ner­ship with the Royal United Services Institute’s Centre for Financial Crime and Security Studies.

Original source of arti­cle: www.atlanticcouncil.org