The Paradise Papers Shine Light on Kleptocracy

A Eurasianet commentary

The Paradise Papers com­prise mil­lions of leaked doc­u­ments relat­ing to off­shore activ­i­ties of the super-rich, includ­ing Queen Elizabeth II. A con­sor­tium of inves­tiga­tive jour­nal­ists in ear­ly November start­ed pub­li­ciz­ing the activ­i­ties and events doc­u­ment­ed in the Paradise Papers, many of which revolved around tax eva­sion and avoid­ance. Somewhat buried in the mound of data are a few nuggets of infor­ma­tion that illus­trate how klep­to­crat­ic gov­ern­ing sys­tems in Eurasia operate.

A rel­a­tive­ly tiny batch of the Paradise Papers sheds light on a lit­tle known pri­vate com­pa­ny, Meridian Capital, which in 2006 con­trolled assets worth over an esti­mat­ed $3 bil­lion. The Paradise Papers show that Meridian’s busi­ness inter­ests are var­ied: among the enti­ties it con­trolled dur­ing the peri­od in ques­tion were a dozen oil and min­ing fields around the world, a major Kazakh rail trans­porta­tion com­pa­ny, a large Latvian dairy pro­duc­er and a Russian region­al air­port company.

The leaked doc­u­ments also named Sauat Mynbayev, the cur­rent chair­man of Kazakh state oil and gas com­pa­ny KazMunaiGaz, as one of Meridan Capital’s major share­hold­ers  from at least 2006–2011, report­ed­ly hold­ing an 18.5 per­cent stake. During the time­frame in ques­tion, Mynbayev worked as the Kazakh Minister of Energy and the Minister of Oil of Gas. Research from the Organised Crime and Corruption Reporting Project (OCCRP) indi­cates that Meridian’s own­ers received at least $176 mil­lion in div­i­dends out of its arrange­ment with a com­pa­ny involved in trans­port­ing Kazakh oil and minerals.

The fact that Mynbayev was prof­it­ing from oil busi­ness relat­ed to the Kazakh state while being Kazakhstan’s top oil and gas offi­cial is a clear con­flict of inter­est – and poten­tial­ly even ille­gal under Kazakhstani law, which states that gov­ern­ment offi­cials can­not “engage in entre­pre­neur­ial activ­i­ties, includ­ing par­tic­i­pa­tion in the man­age­ment of a com­mer­cial orga­ni­za­tion, regard­less of its orga­ni­za­tion­al and legal form.”

Ownership stakes in Meridian Capital Limited as of 2006.

Since the pub­li­ca­tion of OCCRP’s research, Mynbayev has admit­ted that he was a Meridian share­hold­er, adding that he had declared this in his tax doc­u­ments, and that he had giv­en up his stake “sev­er­al years ago.” In coun­tries where the rule-of-law is strong, this rev­e­la­tion could eas­i­ly have cre­at­ed a scan­dal. But as of this writ­ing, there has been lit­tle reac­tion in Kazakhstan, and Mynbayev con­tin­ues to hold his posi­tion as head of KazMunaiGaz.

Mynbayev’s involve­ment in a pri­vate enter­prise shouldn’t real­ly come as a shock in Kazakhstan , where the mesh­ing of pol­i­tics with busi­ness is not uncom­mon. It’s an arrange­ment that has helped main­tain the polit­i­cal sta­tus quo in Kazakhstan under President Nursultan Nazarbayev since the col­lapse of the Soviet Union.  It is also a sys­tem seen all over Central Asia, where repres­sive regimes are aid­ed – wit­ting­ly or oth­er­wise – by a coterie of high-pow­ered Western lawyers, accoun­tants, com­pa­ny ser­vice providers and bankers.

The list of Eurasian scan­dals con­nect­ed to the mis­deeds of the pow­er­ful is long.

For years, the anti-cor­rup­tion watch­dog Global Witness has high­light­ed how the Turkmen gov­ern­ment main­tains a mul­ti-bil­lion dol­lar off-bud­get fund at Deutsche Bank con­trolled direct­ly by the pres­i­dent. The fund appears to have sur­vived the death of pres­i­dent Saparmurat Niyazov, and is believed to be main­tained by the incum­bent, Gurbanguly Berdymukhamedov to this day. It’s also worth not­ing that Berdymukhamedov’s son, Serdar, is now an influ­en­tial mem­ber of par­lia­ment while at the same time report­ed­ly main­tain­ing inter­ests in a string of lucra­tive busi­ness­es, includ­ing a cot­ton-spin­ning plant, a min­er­al water fac­to­ry and a chain of hotels.

Elsewhere, a few years ago in Tajikistan, mon­ey was siphoned away from the state-con­trolled alu­mini­um com­pa­ny through a British Virgin Island com­pa­ny that act­ed as a mid­dle­man, through which $100 mil­lion went to buy two Boeing 737s to start a pri­vate air­line report­ed­ly con­trolled by the president’s brother-in-law.

And among the more noto­ri­ous cas­es are that of Maxim Bakiyev — the son of the for­mer pres­i­dent of Kyrgyzstan – who resided in a £3.5 mil­lion house in a leafy area of Surrey, England that appar­ent­ly was bought for him by a murky Belize-based enti­ty with funds sus­pect­ed to have been stolen from the Kyrgyz state through the country’s largest bank.

There is also the case of Gulnara Karimova, the daugh­ter of the for­mer pres­i­dent of Uzbekistan. She is sus­pect­ed of receiv­ing close to $1 bil­lion in bribes from tele­coms com­pa­nies, result­ing in the largest for­fei­ture action the US Department of Justice has ever brought to recov­er the pro­ceeds of bribery.

As the Paradise Papers illus­trate, most of the trans­ac­tions involved in these scan­dals were aid­ed by law firms often reg­is­tered in European jurisdictions.

In recent years, cam­paign­ers have been push­ing for stricter trans­paren­cy laws in an attempt to make it hard­er for cor­rupt offi­cials to prof­it off the back of their coun­tries. Earlier in the year, the United Kingdom – fol­low­ing sim­i­lar actions in Australia and Ireland – passed leg­is­la­tion regard­ing Unexplained Wealth Orders, allow­ing law enforce­ment to inves­ti­gate cas­es in which an indi­vid­ual pur­chas­es lux­u­ry items beyond their appar­ent means.

The UK has already brought in a new reg­is­ter of ‘ben­e­fi­cial own­er­ship’ for com­pa­nies reg­is­tered in the UK (but, alas, not its Overseas Territories or Crown Dependencies), and is also attempt­ing to bring in leg­is­la­tion that would reveal the real own­ers of all prop­er­ty (though progress has been slow going).

With sim­i­lar moves towards ben­e­fi­cial own­er­ship trans­paren­cy ongo­ing in FranceNorwayNetherlandsUkraine and else­where, hopes are ris­ing that a glob­al ben­e­fi­cial own­er­ship reg­is­ter may one day become a real­i­ty, thus mak­ing it hard­er for offi­cials to prof­it from their gov­ern­ment posi­tions. Until that time, cit­i­zens in the coun­tries of Eurasia will have to rely on there being more high-pro­file leaks to under­stand who real­ly con­trols their nations’ wealth.

By Thomas Mayne and Peter Zalmayev

The Paradise Papers Shine Light on Kleptocracy

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