The Ablyazov Affair: ‘Fraud on an Epic Scale’

New rounds of litigation add to the opaque case of fugitive ex-Kazakh minister Mukhtar Ablyazov.

With the ninth anniver­sary of his flight from the author­i­ties in his home­land of Kazakhstan fast approach­ing, the raft of transna­tion­al court cas­es involv­ing fugi­tive embez­zler Mukhtar Ablyazov show no sign of abat­ing. In a saga which stretch­es from an insti­tu­tion­al aver­sion to tack­ling klep­toc­ra­cy in the United Kingdom, to U.S President Donald Trump’s shady busi­ness part­ners, the murky world of Mukhtar Ablyazov even led his fam­i­ly to make a pit stop in the Central African Republic to pick-up diplo­mat­ic pass­ports. Yet despite hav­ing judge­ments against him total­ing $4.9 bil­lion in the British courts alone, almost six years since he fled from the UK to avoid three con­cur­rent 22-month sen­tences for con­tempt of court, Ablyazov remains a free man, liv­ing the high life in France whilst bemoan­ing his plight to be a sim­ple case of “polit­i­cal persecution.”

The venues for the lat­est rounds of lit­i­ga­tion against Ablyazov include pro­ceed­ings in London, Lyon, Astana, Los Angeles and New York. In the UK, a case brought by JSC BTA Bank accus­es Ablyazov’s son-in-law, Ilyas Khrapunov of orches­trat­ing a “con­spir­a­cy… in breach of court orders” to pre­vent the enforce­ment of freez­ing orders against Ablyazov. In France, the fall­out from the hack­ing of a magistrate’s phone and a deci­sion tak­en by France’s high­est admin­is­tra­tive court, the Conseil d’Etat in December 2016, to over­turn an extra­di­tion order against Ablyazov con­tin­ues to rum­ble on. In New York, the Khrapunovs stand accused of laun­der­ing mon­ey by flip­ping Trump Soho con­dos, a sub­ject like­ly to come up in the Mueller probe. In Kazakhstan, mean­while, where Ablyazov was recent­ly sen­tenced in absen­tia to 20 years in prison for embez­zle­ment and abuse of author­i­ty, in October 2017 the Prosecutor General’s office reopened a case which impli­cates Ablyazov in the mur­der of a wealthy opponent.

So who is this crim­i­nal mas­ter­mind, a man alleged to have ordered the assas­si­na­tion of his erst­while busi­ness part­ner and found guilty of com­mit­ting “fraud on an epic scale”?

A Country Boy Turned Kleptocrat

Born in 1963 in Southern Kazakhstan to a fam­i­ly of lim­it­ed means, Mukhtar Ablyazov grad­u­at­ed from the Moscow Engineering and Physics Institute dur­ing per­e­stroi­ka, a time when the achieve­ments of the Soviet Union were being rad­i­cal­ly reassessed. With the winds of change that would result in the rise of the oli­garchs rak­ing across the USSR, Ablyazov aban­doned a career in nuclear physics to embrace the new Wild West cap­i­tal­ism. Only weeks after leg­is­la­tion allow­ing pri­vate enter­pris­es in Kazakhstan was passed, Ablyazov reg­is­tered a com­pa­ny sell­ing fax machines, pho­to­copiers and com­put­ers in December 1992. Launching a pletho­ra of busi­ness­es in quick suc­ces­sion, he set about lur­ing elites into invest­ing in his Astana Holding Bank, one of the first insti­tu­tions in the coun­try to gain a pri­vate bank­ing license. In 1998, togeth­er with a con­sor­tium of investors, Ablyazov acquired a loan to buy Bank Turan Alem — lat­er to become known as BTA Bank — in a pri­va­ti­za­tion auc­tion for a cut-price fee of $72 million.

At around the same time, Ablyazov was appoint­ed as head of the state-owned Kazakhstan Electricity Grid Operating Company (KEGOC) and named Minister for Energy, Industry, and Trade in Kazakhstan. Within a year, KECOG rev­enues were down by 12 per­cent and expen­di­ture up by 53 per­cent, a pat­tern repeat­ed in 1999 when he was named CEO of Air Kazakhstan, swift­ly asset-strip­ping the com­pa­ny into bank­rupt­cy. Having had the temer­i­ty to form a par­ty of oppo­si­tion to President Nursultan Nazarbayev, in 2002 Ablyazov was sen­tenced to jail, pur­port­ed­ly for abuse of gov­ern­ment office, re-emerg­ing a year lat­er hav­ing sworn to abstain from polit­i­cal adventures. 

Having retained his inter­ests in BTA through a ben­e­fi­cial own­er­ship arrange­ment, in 2005 Ablyazov became chair­man of the bank fol­low­ing the death of his pre­de­ces­sor, Yerzhan Tatishev in what was ruled at the time to have been a freak hunt­ing acci­dent. Recanting his orig­i­nal state­ment, in November 2017, Muratkhan Tokhmadiyev, the man who admit­ted at the time to shoot­ing Ablyazov’s erst­while busi­ness part­ner told a court in Almaty: “Each time I met [Ablyazov] he argued that Yerzhan could not at any instant keep or sus­tain his word… He pro­posed to deal with the prob­lem through the phys­i­cal elim­i­na­tion of Yerzhan. This would hap­pen dur­ing a hunt­ing trip and look like an acci­den­tal death. And so it happened.”

As Chairman of BTA, Ablyazov was now free to start fun­nel­ing mon­ey out of what was the largest retail bank in Kazakhstan. This was large­ly done by issu­ing loans to finance real estate deals through­out the for­mer Soviet Union, loans which were passed through a web of shell com­pa­nies. Operating as a bank with­in a bank from a sep­a­rate high secu­ri­ty sec­tion of BTA’s head office, between 2005 and 2009 at least $8 bil­lion worth of loans were approved, large­ly to mail­box enti­ties with no col­lat­er­al, based in tax havens in which Ablyazov held a sig­nif­i­cant but almost exclu­sive­ly anony­mous own­er­ship inter­est. Following the finan­cial crash and Ablyazov’s flight from his home­land to claim asy­lum in the UK, an audit by the Kazakh author­i­ties dis­cov­ered this huge black hole. In total, over a thou­sand com­pa­nies world­wide in which Mukhtar Ablyazov held a ben­e­fi­cial inter­est have been iden­ti­fied so far, rang­ing from an ocea­nari­um to the fan­ci­ful­ly named Facebook Trading Limited. 

A Shell Within a Shell

To obfus­cate the where­abouts of assets, many of these off­shore enti­ties worked on a lend and bor­row basis, shuf­fling cap­i­tal on to a third par­ty from where it could no longer be recov­ered. An exam­ple of this would be the $118 mil­lion of BTA col­lat­er­al chan­neled through a com­pa­ny called Starwood Contracts Limited in the Seychelles, whose ben­e­fi­cial own­er was Somerset Projects IHC, based in the British Virgin Islands, which held its bank accounts in Latvia. Starwood then received 99 per­cent of the shares in Archeston Solutions Inc, based in the British Virgin Islands, which in turn con­trolled 99 per­cent of a con­cern called Business Engineering in Moscow, which owned anoth­er enter­prise called Central Engineering in Moscow. Starwood and Somerset then loaned Jollawood Trading in Cyprus $25 mil­lion, who then cred­it­ed the funds to Central Engineering. 

If that sounds impen­e­tra­ble, it’s because it’s sup­posed to be. 

In a more straight­for­ward exam­ple, $1 bil­lion was trans­ferred from BTA to a trio of com­pa­nies in the guise of loans for new drilling equip­ment with which to explore the Mertviy Kultuk oil­field in the Caspian Sea. With the type of rig spec­i­fied in the loan agree­ment not hav­ing been invent­ed, the oil­field remains untapped to this day.

In September 2005, Eastbridge Capital, an invest­ment hold­ing com­pa­ny nom­i­nal­ly owned by Alexander Udovenko was formed in London. When Hogan Lovells, a law firm rep­re­sent­ing BTA, asked to see Eastbridge’s com­put­er records, they were told that the com­pa­ny — the hub through which Ablyazov shift­ed his assets around the world — had been sold “for a pound” and its records lost for­ev­er. Yet when inves­ti­ga­tors fol­lowed Ablyazov’s broth­er-in-law, Salim Shalabayev, to a stor­age unit in north London in January 2011, a search war­rant enabled them to uncov­er a cache of 25 box­es of doc­u­men­ta­tion and a hard dri­ve detail­ing the exploits of many of Ablyazov’s shell com­pa­nies. Wanted in Russia for his part in a $730 mil­lion fraud, Udovenko had already long since dis­ap­peared. His where­abouts remain unknown to this day. Eastbridge Capital would lat­er resur­face in Cyprus under the name Euroguard Assets Limited. 

Roman Borisovich from the anti-klep­toc­ra­cy NGO, ClampK spoke to The Diplomatabout Ablyazov’s shell com­pa­nies and the fact that among the pur­port­ed ben­e­fi­cial own­ers of these were a dead alco­holic and a down-and-out for­mer sol­dier who knew noth­ing of the con­cern in ques­tion. “Clearly, he didn’t set them all up,” Borisovich says. “This was his accoun­tants and lawyers, and they would know where the key ele­ments are. Sometimes these com­pa­nies are cre­at­ed because you want them to be a chain of own­er­ship, so five com­pa­nies could be set up just for the pur­pose of one own­ing anoth­er. That’s how things work… so there’s vir­tu­al­ly no way of link­ing an indi­vid­ual to a com­pa­ny. As for the [ben­e­fi­cial own­ers], it’s eas­i­ly done. These doc­u­ments — espe­cial­ly with home­less peo­ple — they sell, lose or peo­ple steal their pass­ports and then, the next thing you know, they become own­ers. They open up all sorts of com­pa­nies. This hap­pens quite a lot.”

Cynicism, Opportunism and Deviousness”

Although Ablyazov was grant­ed asy­lum in the UK, set­tling into opu­lent Carlton House on Billionaire’s Row in Highgate – one of four UK prop­er­ties he was lat­er found to be the own­er of – his trou­bles fol­lowed him in the form of law­suits brought against him by BTA Bank. It was his duplic­i­tous deal­ings in British real estate, in fact, which led Ablyazov to per­jure him­self, Justice Nigel Teare find­ing that he had “act­ed in con­tempt of court” in attempt­ing to con­ceal these assets. 

Sentenced to 22 months in prison, Ablyazov was soon on the run again, this time from British jus­tice. Despite an arrest war­rant hav­ing been issued and his mugshot being placed on air­port watch lists, he man­aged to slip away to France. Civil con­tempt is not an extra­ditable offence in the UK. 

In his absence, between November 2012 and March 2013, British courts passed $4.2 bil­lion in judg­ments against Ablyazov, with Lord Justice Maurice Kay observ­ing that: “It is dif­fi­cult to imag­ine a par­ty to com­mer­cial lit­i­ga­tion who has act­ed with more cyn­i­cism, oppor­tunism and devi­ous­ness towards court orders than Mr Ablyazov.” Only a small frac­tion of the $4.9 bil­lion in judge­ments passed against Ablyazov by the British courts have been phys­i­cal­ly recovered.

Among numer­ous British insti­tu­tions to suf­fer at the hands of Ablyazov, the  Royal Bank of Scotland (RBS) — which was sub­se­quent­ly bailed-out by British tax­pay­ers — suf­fered loss­es of more than $1.8 bil­lion. Charles van der Leeuw, the author of a book on Ablyazov and the Kazakh klep­to­crats, told The Diplomat, “RBS inher­it­ed the fool­ish invest­ment into BTA at the time Ablyazov was run­ning it from its takeover of assets belong­ing to ABN AMRO.”

These assets were, and still are, risk-bear­ing,” he said, “mean­ing that default can turn them into lia­bil­i­ties. No one can tell me that ABN AMRO was unaware of that when it acquired them. No one can tell me either that RBS was unaware of that when it took them over from ABN AMRO. It is hard to prove a kick­back in the process, but giv­en the ease with which RBS and oth­er fun­ders accept­ed their hair­cut, it def­i­nite­ly fails to pass the smell test. If BTA lays claims to funds dis­ap­peared through Ablyazov’s net­work, it should endeav­or to lay claims on RBS and oth­ers, hold­ing them co-respon­si­ble for the thefts.”

An area where assets were suc­cess­ful­ly recov­ered came in the form of Ablyazov’s four prop­er­ties in and around London. After years of court bat­tles, the pro­ceeds from the sale of these assets were the first funds that BTA was to see. With research released by Transparency International in March 2017 iden­ti­fy­ing 40,000 prop­er­ties in London alone worth a total of almost $6 bil­lion that were pur­chased by indi­vid­u­als with “sus­pi­cious wealth,” this suc­cess is rare in itself. 

Our research sug­gests the UK is home to bil­lions of pounds in cor­rupt assets,” Duncan Hames, Director of Policy at Transparency International UK told The Diplomat. “We acknowl­edge the chal­lenges of pros­e­cut­ing transna­tion­al cor­rup­tion cas­es but expect the UK author­i­ties to play a full part in inves­ti­gat­ing any aspect of glob­al mon­ey laun­der­ing cas­es with a UK connection.”

Naomi Hirst, a senior cam­paign­er at Global Witness, said “It’s been 18 months since the Panama Papers, and back then it looked as if the gov­ern­ment did actu­al­ly take notice and rec­og­nize the scale of the prob­lem and the UK’s role in that.” 

Subsequent to the Panama Papers,” she said, “the International Anti-Corruption Summit was host­ed here by David Cameron… At the sum­mit, the gov­ern­ment promised to bring in a reg­is­ter which would reveal the real own­ers of over­seas com­pa­nies that own prop­er­ties here… In the 18 months that have passed, we’re anoth­er set of leaks on, but real­ly we’ve seen no mean­ing­ful action from the UK government.”

Fugitive on the French Riviera

After high­tail­ing it out of the UK, Ablyazov went into hid­ing, mov­ing between lux­u­ry vil­las in the south of France. Shortly after this, in late 2012, the name Yelena Tyshchenko began appear­ing on legal doc­u­ments per­tain­ing to Ablyazov’s case. A Ukrainian lawyer, Tyshchenko was spend­ing an increas­ing amount of time at the head­quar­ters of Eastbridge Capital in Tower 42 in London’s Old Broad Street. With Tyshchenko final­iz­ing her sep­a­ra­tion from her hus­band at the time, the man named in his peti­tion for divorce was none oth­er than Mukhtar Ablyazov.

In mid-July 2013, fol­low­ing swift­ly dis­missed pro­ce­dur­al motions brought by Ablyazov in the High Court in London, inves­ti­ga­tors hired by BTA trailed Tyshchenko to a vil­la in Nice, where she changed into a skimpy out­fit before dri­ving to a sec­ond prop­er­ty near Cannes. After 17 months of intense search­ing, Tyshchenko had led the gumshoes straight to Ablyazov — by this junc­ture the sub­ject of an Interpol Red Notice — who was spot­ted through the cur­tains lay­ing flow­ers on a bed in prepa­ra­tion for his mis­tress­es’ arrival. For the next two weeks, inves­ti­ga­tors — one decked in a biki­ni and anoth­er repeat­ed­ly trudg­ing back and forth over a cross­ing near the main vil­la — staked out Ablyazov. On July 31, French Special Forces stormed the premis­es. Ablyazov would spend the next three years in detention. 

Arrested in a Moscow hotel a month lat­er for “swin­dling” and mon­ey laun­der­ing, Tyshchenko went on to turn evi­dence against her for­mer lover in exchange for amnesty from pros­e­cu­tion. Within a year, Tyshchenko had been appoint­ed as head of a gov­ern­ment anti-cor­rup­tion task force in Ukraine, though she was soon fired for fail­ing to dis­close her real estate deal­ings in the UK and France.

For the next three years, for much of which he was incar­cer­at­ed in Fleury-Mérogis prison, Ablyazov con­tin­ued to protest his inno­cence. “Everything is untrue. Everything has been fab­ri­cat­ed in Kazakhstan,” he told a court in Aix-en-Provence; “I’m con­vinced I am being per­se­cut­ed for polit­i­cal rea­sons.” Speaking on behalf of the French state, Advocate-General Solange Legras told the court that Ablyazov should be seen as a “crim­i­nal on a grand scale… When you have so much mon­ey, you can buy every­thing, but you can­not buy the French jus­tice system.”

In January 2014, the court approved an extra­di­tion request by Russia, where Ablyazov is want­ed for fraud totalling $4.5 bil­lion. This deci­sion hav­ing been upheld by the courts of appeal, an extra­di­tion order was signed by then Prime Minister, Manuel Valls in 2015. On December 9, 2016, though, the Conseil d’Etat over­turned all pre­vi­ous ver­dicts on the grounds that the extra­di­tion request had been made for polit­i­cal rea­sons. “France must refrain from extra­dit­ing an indi­vid­ual to a coun­try where there are seri­ous grounds for believ­ing that he or she would be in dan­ger of being sub­ject­ed to tor­ture,” UN Special Rapporteur on Torture, Nils Melzer had argued just days before the ruling.

In a writ­ten inter­view, a rep­re­sen­ta­tive of BTA Bank described the court’s deci­sion as “com­plete­ly unex­pect­ed,” express­ing their “sur­prise and dis­ap­point­ment.” Although the log­ic behind this judi­cial rever­sal remains mys­ti­fy­ing, an expert on the sit­u­a­tion who spoke on con­di­tion of anonymi­ty cit­ed wider geopo­lit­i­cal con­cerns and a low point in Franco-Russian rela­tions as the key fac­tors behind the decision.

The Silk Road to Soho

It is through their nefar­i­ous real estate deals that Ablyazov and his asso­ciates have become embroiled in legal bat­tles in the United States. During his time as chair­man, BTA joined forces on invest­ment projects with the Silk Road Group, a com­pa­ny impli­cat­ed in alleged finan­cial fraud as revealed in the Panama Papers. The Silk Road Group entered into an agree­ment with the Trump Organization to license the Trump brand for two lux­u­ry devel­op­ments in Tbilisi and Batumi, Georgia, a deal which was only can­celled when Donald Trump became pres­i­dent. The rela­tion­ship between the two par­ties may be sub­ject to for­mer Federal Bureau of Investigations (FBI) direc­tor Robert Mueller’s inves­ti­ga­tion into pos­si­ble col­lu­sion between the Trump cam­paign and Russia. With Trump’s lawyer stat­ing that the “real-estate deal would be out­side the scope of legit­i­mate inquiry,” Trump him­self has been even more forthright.

Another sub­ject under inves­ti­ga­tion is the Bayrock Group, which the Trump Organization part­nered with for projects in Arizona, Florida and New York. Ablyazov’s in-laws, for­mer may­or of Almaty, Viktor Khrapunov, his TV anchor­woman wife, Leila and their son, Ilyas became involved with Bayrock dur­ing the company’s devel­op­ment of the Trump Soho project in Manhattan. Court doc­u­ments tie Trump asso­ciate Felix Sater — who served time for stab­bing a man in bar brawl and Mafia-linked stock fraud — to the Khrapunovs, who flipped three con­dos in the devel­op­ment. The Khrapunovs are cur­rent­ly the sub­ject of civ­il suits in New York and Los Angeles. In 2016, Nicolas Bourg, for­mer direc­tor of Luxembourg based invest­ment com­pa­ny, Triadou SPV S.A. tes­ti­fied that the busi­ness belonged to the Khrapunovs, who instruct­ed him to siphon funds out of the United States after the law­suit was filed. Bourg went on to attest that the Khrapunovs and Ablyazov com­min­gled invest­ments, using shell com­pa­nies to obfus­cate the nature of their real estate deals in the United States and beyond.

Back in 2005, Donald Trump grant­ed Bayrock the exclu­sive rights to con­struct a Trump International Hotel and Tower in Moscow, a ven­ture in which he’d receive a sig­nif­i­cant stake. In direct con­tra­dic­tion to Trump’s recent claims, emails uncov­ered by inves­ti­ga­tors show that Sater and Trump Organization lawyer Michael Cohen were active­ly pur­su­ing a hotel deal in Moscow dur­ing the elec­tion cam­paign. Unsurprisingly, Trump has attempt­ed to dis­tance him­self from any wrong­do­ing. “If he were sit­ting in this room right now, I real­ly wouldn’t know what he looks like,” Trump said of Sater in 2013, despite a pletho­ra of pho­tographs show­ing the pair togeth­er. “Our boy can become President of the USA and we can engi­neer it,” Saterenthused in emails to Michael Cohen. “I will get all of Putin’s team to buy in on this, I will man­age this process. I will get Putin on this pro­gram and we will get Donald elected.”

Playing at Politics

Almost inevitably, this tan­gled tale leads full cir­cle back to London, where a suit seek­ing a freez­ing order on the assets of Ilyas Khrapunov for act­ing as a proxy for his father-in-law has been in motion since June 2017, though it is not set to go to tri­al until January 2019. That Khrapunov act­ed as a con­sci­en­tious accom­plice to Ablyazov’s embez­zle­ment schemes, there are, accord­ing to a rep­re­sen­ta­tive of BTA Bank, “no grounds for doubt… the Commercial Court of England and Wales issued a deci­sion oblig­ing Ilyas Khrapunov to pro­vide all data under a pre­vi­ous­ly imposed dis­clo­sure order… infor­ma­tion about his assets and the assets that he man­ages on behalf of Mukhtar Ablyazov, but he refused to do so. Moreover, the court ordered Ilyas Khrapunov to pay the legal expens­es incurred by the Bank.” Currently chal­leng­ing the juris­dic­tion of both British and American courts over him in an attempt to stymie the legal process, Ilyas Khrapunov is also the sub­ject of an extra­di­tion request from Ukraine in Switzerland.

For Ablyazov, mean­while, con­tin­u­ing to present him­self as an oppo­si­tion fig­ure and the cas­es against him as polit­i­cal­ly moti­vat­ed has played well. “Ablyazov is nei­ther the first nor the last in using the label of ‘polit­i­cal vic­tim,’” a rep­re­sen­ta­tive of BTA Bank told The Diplomat. “Posing as a ‘polit­i­cal vic­tim,’ he cer­tain­ly hopes for pro­tec­tion from the law, pri­mar­i­ly in Western juris­dic­tions. Ablyazov sim­ply has no oth­er choice but to stick to this sin­gle line of defense.”

British Member of the European Parliament Julie Ward is among the sig­na­to­ries of a let­ter to Interpol call­ing cas­es against Ablyazov “polit­i­cal­ly moti­vat­ed.” In a state­ment, a par­lia­men­tary assis­tant to the MEP said that “Ablyazov refused to dis­close his assets to the London court cit­ing the risk of his asso­ciates’ per­se­cu­tion by the Nazarbayev regime. He was there­fore charged with ‘con­tempt of court’ and, as a result, he was sen­tenced to 22 months incar­cer­a­tion. After being warned of risks of kid­nap­ping or assas­si­na­tion sev­er­al times by var­i­ous sources, includ­ing the British police, he was forced to leave the UK.”

While putting a new spin on Ablyazov’s claim that he was forced to use off­shore secre­cy, this argu­ment belies both the case in point and the time­line of events. Firstly, the judge­ment of con­tempt of court relat­ed to “lies” told by Ablyazov in a “sham” designed to deceive the court into believ­ing that he was not the sole ben­e­fi­cial own­er of real estate in the UK, accord­ing to Justice Teare. Secondly, while it is true that Ablyazov did receive a so-called Osman warn­ing from the Metropolitan Police noti­fy­ing him of an assas­si­na­tion and kid­nap­ping threat, this was served on January 29, 2011. Over a year would pass before he fled the country.

Today, from his vil­la in France, Ablyazov con­tin­ues to bemoan his “per­se­cu­tion” through NGOs such as the Open Dialog Foundation, whose activ­i­ties, a report from a con­fer­ence held in the European Parliament in November 2017 found, are fund­ed by com­pa­nies “flagged and sanc­tioned by the West.” The real losers in this case, how­ev­er, are those hard­est hit by Ablyazov’s activ­i­ties: Kazakh pen­sion­ers who saw their retire­ment funds dis­ap­pear and some 30,000 home­buy­ers in Almaty who invest­ed in prop­er­ties which were nev­er built. In these opaque cas­es, BTA Bank says, $1.4 bil­lion has been recov­ered to date. Current esti­mates as to the total amount embez­zled by Mukhtar Ablyazov stand at in excess of $10 billion. 

Stephen M. Bland is a free­lance jour­nal­ist and author spe­cial­iz­ing on Central Asia and the Caucasus.

The Ablyazov Affair: ‘Fraud on an Epic Scale’