Top Kazakhstani Official Holds Stake in Secretive Transportation Empire

For more than a decade, one mys­te­ri­ous trans­porta­tion com­pa­ny has been pri­mar­i­ly respon­si­ble for mov­ing Kazakhstan’s oil and gas by rail. Its rise was made pos­si­ble by a strong and lucra­tive part­ner­ship with the country’s largest oil and gas pro­duc­er. But despite its lead­ing role in the indus­try, it has con­tin­ued to fly under the radar. Even as it made mil­lions of dol­lars in prof­its, the iden­ti­ty of its own­ers has remained hid­den, dis­guised by a grow­ing net­work of off­shore companies.

The secre­cy was not for noth­ing. As it turns out, this trans­porta­tion com­pa­ny, TTG Group, had friends – and share­hold­ers – in high places. For most of its his­to­ry, and pos­si­bly still today, one of its own­ers has been Sauat Mynbayev, Kazakhstan’s for­mer oil min­is­ter and now CEO of KazMunayGaz, the state oil and gas com­pa­ny, accord­ing to an inves­ti­ga­tion by the Organized Crime and Corruption Reporting Project (OCCRP).

The rev­e­la­tion comes from the Paradise Papers, an off­shore leak obtained by the German news­pa­per Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ), which orga­nized the glob­al col­lab­o­ra­tion of which OCCRP is part.

Built on the foun­da­tion of a for­mer state-owned enter­prise, TTG Group owns Kazakhstan’s largest pri­vate fleet of oil and gas rail cars, main­te­nance facil­i­ties, and a rail depot that ser­vices the country’s largest oil field. Its oper­a­tions are con­ve­nient­ly based in west­ern Kazakhstan, where most of the oil and gas indus­try is located.

And the group’s suc­cess large­ly depends on one key cus­tomer – Tengizchevroil (TCO), a Chevron-led con­sor­tium that includes ExxonMobil, LukArco (owned by Russia’s Lukoil), and KazMunayGaz, the very same state oil giant that Mynbayev now heads.

His lead­er­ship of the com­pa­ny and his for­mer role as oil min­is­ter make Mynbayev respon­si­ble for the stew­ard­ship of the oil wealth on which much of the country’s econ­o­my depends. But at the same time, his pri­vate busi­ness inter­ests in rail trans­porta­tion have earned him and his part­ners at least $260 million.

As a pub­lic offi­cial, Mynbayev had an oblig­a­tion to declare this con­flict of inter­est. There is no proof he ever did.

The deal may put the Western com­pa­nies at odds with the Foreign Corrupt Practices Act depend­ing what they knew about the con­flict of interest.

But what are the odds that he would ever be found out? TTG Group’s own­er­ship struc­ture is a con­vo­lut­ed maze of off­shore hold­ings. Even those with the patience to fol­low the trail as far as it goes – and the access to do so – would find no trace of Mynbayev and his partners.

The Paradise Papers leak pro­vid­ed OCCRP reporters with the first clue: Mynbayev’s stake in Meridian Capital, an invest­ment hold­ing com­pa­ny reg­is­tered in the tax haven of Bermuda. Even so, it took the for­tu­itous find of a sin­gle sen­tence in a finan­cial report filed this year to con­nect Meridian to the Kazakhstani trans­porta­tion conglomerate.

Meridian Capital did not respond to requests for com­ment, and rep­re­sen­ta­tives of KazMunayGaz ini­tial­ly denied that Mynbayev had any rela­tion­ship with Meridian Capital.

However, after the pub­li­ca­tion of an ear­li­er OCCRP sto­ry link­ing him to the off­shore firm, Mynbayev admit­ted that he had been its share­hold­er, but said that he had declared this in his tax doc­u­ments, and that he had giv­en up his stake “sev­er­al years ago.”

Contacted by OCCRP again for this sto­ry, Mynbaev’s office did not com­ment, but said that a lawyer would be in touch with reporters. No sub­se­quent com­mu­ni­ca­tion was received. No oth­er Meridian share­hold­ers respond­ed to requests for comment.

Records from Appleby, the law firm whose doc­u­ments form much of the Paradise Papers leak, list him as being an “active PEP” – a “polit­i­cal­ly exposed per­son” – as recent­ly as April 2016. This means that, as of that date, he was like­ly still a share­hold­er of an off­shore firm under its man­age­ment. (See: Kazakhstan’s Secret Billionaires)

Inside the Matryoshka Doll

Kazakhstani busi­ness records are incom­plete, and those that were found con­tra­dict TTG Group’s own claims about its ori­gins, mak­ing it impos­si­ble to defin­i­tive­ly estab­lish its his­to­ry and its own­ers. That’s why com­ing to under­stand how it came under the con­trol of Meridian Capital – and how that con­nec­tion helped ensure its suc­cess – requires div­ing into its com­plex off­shore hold­ing structure.

TTG Group is a Dutch hold­ing com­pa­ny that owns TengizTransGaz, the group’s Kazakhstani oper­a­tional com­pa­ny, and five more sub­sidiaries. But that’s not all. TTG Group itself is owned by anoth­er Dutch com­pa­ny, which in turn is owned by a Cyprus com­pa­ny owned by a BVI com­pa­ny – fol­lowed by even more lay­ers of offshores.

None of these lay­ers include Meridian Capital, the com­pa­ny of which Mynbayev is a shareholder.

But a finan­cial report filed this year by TTG Group reveals that on Sept. 16, 2011, an unusu­al secret deal took place. That deal gave one of Meridian’s com­pa­nies the option to pur­chase all of TTG Group’s shares for $1.

Exercising this option would have made Meridian Capital show up with­in the group’s own­er­ship struc­ture – and run the risk of being dis­closed to the pub­lic. This nev­er hap­pened – on paper, the struc­ture remained the same.

Since the con­tract that gov­erns the 2011 deal is not avail­able, the oth­er terms it estab­lished are unclear.

But the finan­cial report filed this year reveals that, since that day, “the ben­e­fi­cial own­er­ship” and “all eco­nom­ic ben­e­fits” of TTG Group have ulti­mate­ly belonged to Mynbayev and his part­ners. This means that the deal must have includ­ed some kind of mech­a­nism that enabled Meridian to receive TTG Group’s prof­its with­out becom­ing its for­mal owner.

By this point, TTG Group had already become mas­sive­ly prof­itable, with annu­al rev­enues of $100 mil­lion and prof­its of over $40 mil­lion in 2010 alone. And no won­der – Kazakhstan’s oil indus­try was in the mid­dle of a mas­sive boom.

The fact that Mynbayev and his part­ners appear to have received such a prof­itable com­pa­ny for noth­ing strong­ly sug­gests that the deal they made was with them­selves – TTG Group had been theirs all along, and the agree­ment was a clever way to move mon­ey across jurisdictions.

There are oth­er pos­si­ble expla­na­tions for such a deal. For exam­ple, it could have been a cor­po­rate raid, which would mean that Mynbayev and his part­ners had tak­en TTG Group over from some­body else. Or it could have been an inside takeover, sug­gest­ing a falling out among part­ners. But OCCRP reporters were able to obtain addi­tion­al evi­dence for the most like­ly expla­na­tion – that Meridian Capital’s founders had con­trolled TTG Group from the begin­ning. (A review of the company’s web­site, includ­ing archived old­er ver­sions, revealed no announce­ments that it had ever changed hands.)

TTG Group claims to have been estab­lished in 2001. At that time, accord­ing to his biog­ra­phy, its board chair­man was a man named Yevgeniy Feld – a Meridian cofounder and for­mer exec­u­tive at one of Kazakhstan’s largest banks, Kazkommertsbank. As it turns out, this was the same bank that pro­vid­ed cru­cial financ­ing for TTG Group in its ear­ly days. Several oth­er for­mer Kazkommertsbank exec­u­tives, includ­ing Mynbayev, also became Meridian shareholders.

There is fur­ther evi­dence of con­ti­nu­ity in the trans­porta­tion company’s own­er­ship. TengizTransGaz, the local oper­a­tional com­pa­ny, was acquired by TTG Group, the Dutch hold­ing com­pa­ny, in 2008, in a trans­ac­tion that was described as being part of an “intra-group restruc­tur­ing.” This finan­cial term indi­cates that the oper­a­tion did not involve a change of own­er­ship – mean­ing that who­ev­er owned the com­pa­ny before 2008 also owned it after­wards. Both ends point to Meridian Capital.

If it is indeed true that Meridian Capital con­trolled TTG Group dur­ing this entire decade, this would go a long way towards explain­ing the company’s stun­ning suc­cess. (And a 2013 loan of $85 mil­lion giv­en to Meridian by a local sub­sidiary of TTG Group, and appar­ent­ly nev­er repaid, pro­vides fur­ther evi­dence that Meridian con­tin­ued to prof­it from its suc­cess­ful Kazakhstani endeavor.)

With access to financ­ing from Kazkommertsbank and the ben­e­fit of Mynbaev’s many influ­en­tial posi­tions – includ­ing Deputy Prime Minister, Minister of Finance, Minister of Energy and Mineral Resources, Minister of Oil and Gas, and final­ly, CEO of KazMunayGaz – the group had every­thing it need­ed to use their author­i­ty and con­nec­tions to make the com­pa­ny a star.

Rising Star

The Tengiz field, stretch­ing for miles along the north­ern shore of the Caspian Sea, has one of the world’s largest reserves of oil and forms the core of Kazakhstan’s ener­gy indus­try. (The field is Kazakhstan’s biggest, pro­duc­ing over a third of all Kazakhstan’s oil. Kazakhstan has the 12th largest proven reserves in the world).

The field has been oper­at­ed by Tengizchevroil, the joint American-Russian-Kazakhstani con­sor­tium, since 1993. The com­pa­ny uses dif­fer­ent oil export routes – but most of the crude goes through a thou­sand-mile pipeline from the field to Novorossiysk, a Russian port on the Black Sea. The rest is shipped by rail, also to Black Sea ports, from which it is then sold on the world market.

Shipping the oil and gas by rail is a mas­sive and expen­sive under­tak­ing. Though Tengizchevroil owns the rail­road – one of the world’s largest pri­vate tracks – it doesn’t own the rail­cars nor any of the sup­port facilities.

This is where TTG Group comes in.

Acquiring rail cars and leas­ing them to the inter­na­tion­al oil con­sor­tium was the first thing the com­pa­ny did, and for years this was its most lucra­tive busi­ness. After ini­tial­ly buy­ing only oil cars, the com­pa­ny soon diver­si­fied into gas, sul­phur, and oth­er prod­ucts car­ried by Tengizchevroil.

Its first batch of 796 rail­cars, acquired in 2001, came from Alautransgaz, a region­al trans­porta­tion monop­oly which held for­mer state assets.

Mynbayev like­ly helped too. In 2002, while he was chair­man of the Kazakhstan Development Bank, the bank gave TTG Group an $11.7 mil­lion loan to pur­chase anoth­er 300 rail­cars. All of the cars had a guar­an­teed cus­tomer – Tengizchevroil. Over the years, TTG Group con­tin­ued acquir­ing more cars and leas­ing them to their favorite cus­tomer. By today, the fleet has grown to over 6,000 cars.

The cars are not the only valu­able asset TTG Group scored from Kazakhstan’s for­mer state monop­o­lies. One of its most valu­able assets – a facil­i­ty the group itself describes as the foun­da­tion of its busi­ness – was RIP-Gaz, Kazakhstan’s only ser­vicer of gas tank rail­cars, which it also bought from Alautransgaz. Furthermore, Tengizchevroil requires every com­pa­ny that it leas­es cars from to car­ry out a pre-inspec­tion at the facil­i­ty every time they’re filled with gas – more mon­ey into TTG Group’s cof­fers with every shipment.

The group soon made oth­er acqui­si­tions. In 2005, it bought anoth­er main­te­nance com­pa­ny, Ak-Zhayik‑7. The fol­low­ing year, it won a Tengizchevroil ten­der to build a large rail­car park­ing depot.

Another busi­ness oppor­tu­ni­ty soon pre­sent­ed itself. After years of pres­sure, the gov­ern­ment fined Tengizchevroil $609 mil­lion for stock­pil­ing sul­phur, a byprod­uct of oil pro­duc­tion, in vio­la­tion of envi­ron­men­tal reg­u­la­tions. This meant that the con­sor­tium would have to begin export­ing its con­sid­er­able stocks – and TTG Group was there to help ship it away. The com­pa­ny start­ed buy­ing cars that shipped sul­phur, leas­ing them to Tengizchevroil, and charg­ing for main­te­nance. Since 2010, TTG Group has trans­port­ed over 3 mil­lion tons.

As of April 2012, TTG Group has also been act­ing as Tengizchevroil’s freight for­ward­ing agent.

A Loan With No Repayment Schedule

Between 2008 and 2015, Meridian Capital received at least $176 mil­lion in div­i­dends out of its arrange­ment with TTG Group.

But direct prof­its aren’t the only ben­e­fit Meridian sees. One deal OCCRP reporters found pro­vides an exam­ple of how they move mon­ey to Meridian.

On Sept. 4, 2014, TTG Group took out a loan from its Kazakhstani sub­sidiary, TengizTransGaz, for $85 mil­lion. On the very same day, it lent the exact same amount to Meridian Capital International Fund, a Cayman fund that belongs to Meridian.

It does not appear that either of the com­pa­nies ever paid the mon­ey back. “There is no repay­ment sched­ule in place regard­ing this loan,” reads the finan­cial state­ment. A gen­uine loan between inde­pen­dent enti­ties would not have required using an inter­me­di­ary in this man­ner. The com­plex arrange­ment – as well as the fact that the loan appears nev­er to have been repaid – is anoth­er piece of evi­dence sug­gest­ing that Meridian and TTG Group are con­trolled by the same peo­ple, and that Meridian is prof­it­ing hand­some­ly from the arrangement.

More Profits In Sight

With an ongo­ing Tengiz expan­sion project and the devel­op­ment of new oil fields, along with the prospect that Kazakhstan will increase its pro­duc­tion of nat­ur­al gas, TTG Group’s future (and Meridian’s) seems bright.

But TTG Group is not the only com­pa­ny Meridian controls.

On Feb. 2, 2011, through anoth­er Dutch com­pa­ny, Freight International Holding, Meridian gained con­trol of a Kazakhstani com­pa­ny called the Caspian Freight Company for a nom­i­nal price of €1,000. Meanwhile, accord­ing to the Dutch company’s 2015 finan­cial state­ment, Caspian Freight Company was worth over 1 bil­lion KZT (€2.7 mil­lion). The fact that Meridian acquired it for just €1,000 may indi­cate that it was theirs all along.

Just as with TTG Group, the name Meridian itself appears nowhere in the own­er­ship struc­ture. And just as with TTG Group, Caspian Freight Company appears to have begun build­ing anoth­er Kazakhstani trans­porta­tion empire. In 2014, it acquired major­i­ty stakes in two Kazakhstani trans­porta­tion com­pa­nies, Alautransservice (for­mer­ly part of Alautransgaz) and Germes Capital Management.

Within the coun­try, there are no pub­lic reports, news arti­cles, or web sites that would indi­cate that these com­pa­nies all belong to the same secre­tive group. But giv­en the savvy and aggres­sive tac­tics used by Mynbayev and his banker part­ners, it is like­ly that there are more lucra­tive deals in their future.

Legal Questions?

According to experts on the US Foreign Corrupt Practices Act, Chevron and ExxonMobil’s involve­ment may vio­late the act, which bans US com­pa­nies from mak­ing pay­ments to for­eign offi­cials in exchange for pref­er­en­tial treat­ment in busi­ness. This would depend on whether the com­pa­nies knew, or could rea­son­ably have been expect­ed to know, that Mynbayev would per­son­al­ly ben­e­fit from their deal with his gov­ern­ment – and whether these deals could be con­strued as ben­e­fits pro­vid­ed to him for the pur­pose of obtain­ing business.

“Merely claim­ing ‘we didn’t know about the con­flict of inter­est, we didn’t know that this enti­ty was owned in sig­nif­i­cant parts by the min­is­ter’ is in itself not a defense,” said Andy Spalding, pro­fes­sor at the University of Richmond School of Law in Virginia and senior edi­tor at the FCPA blog. “The analy­sis is [whether] you have rea­son to believe that mon­ey going through your sub­sidiary to this com­pa­ny was going to be used to bribe him or any­body else.”

However, Spalding said, for a com­pa­ny to be in vio­la­tion of the act, “we have to have evi­dence of some­thing of val­ue giv­en [to TTG] with a cor­rupt intent.”

It is not known what ExxonMobil or Chevron knew about TTG Group’s own­er­ship or Mynbayev’s involvement.

In response to inquiries for this sto­ry, TTG Group declined to com­ment and ExxonMobil referred reporters to Tengizchevroil and Chevron.

A Chevron spokesper­son wrote that the com­pa­ny “abides by a strin­gent code of busi­ness ethics” and “com­plies with all applic­a­ble laws.” Tengizchevroil declined to com­ment on what it described as a “com­mer­cial issue,” cit­ing com­pa­ny policy.

Additional report­ing by Aubrey Belford, Olga Gein, Vlad Lavrov, and OCCRP Kazakhstan.

by Miranda Patrucic and Ilya Lozovsky

Top Kazakhstani Official Holds Stake in Secretive Transportation Empire