Frozen in Place


Image: Geralt | CC0 1.0

KleptoCast 4: Casey Michel talks to Aaron Bornstein about how the West can use a war-chest of frozen bribery funds to help the victims of kleptocracy.


By Casey Michel
December 16, 2016

Earlier this year, the U.S. Department of Justice released a statement concerning its breathtaking findings into corruption in Uzbekistan. At first blush, the statement appeared relatively anodyne, complicated by financial jargon and swamped in details. Combing through the complicated language, however, allowed readers a glimpse of a case – of a case of immense graft, of corruption nonpareil – Washington had never seen, or at least acted upon, prior.

Trans-national in scope, and anything but transparent in intent, the case centers upon the dealings of Gulnara Karimova, the daughter of erstwhile Uzbekistan President Islam Karimov. Karimova – the “most hated person” in Uzbekistan, per a U.S. cable – has been under house arrest in Uzbekistan since 2014, a victim of the country’s opaque politics. However, where Karimova’s current status remains unclear, the US DOJ’s statement details a network of Scandinavian telecoms, eager to access Uzbekistan’s mobile phone market, willing to partner with shell corporations and offshore jurisdictions to pump, according to the Organized Crime and Corruption Reporting Project, nearly $1 billion to Karimova.

The details of Karimova’s corruption don’t necessarily need rehashing – for a comprehensive examination, the OCCRP has compiled original paperwork and salient analysis alike – but, as the DOJ’s statement makes clear, Karimova’s rank corruption would not have been possible without willing Western partners. Both Swedish-Finnish operator TeliaSonera and Russian-Norwegian operator VimpelCom pushed nine-figure sums toward Tashkent in the hopes of tapping Uzbekistan’s mobile consumer base, the largest in Central Asia. But Washington had other ideas. Via the DOJ’s Kleptocracy Asset Recovery Initiative, the DOJ helped freeze some $850 million – at the time the largest case the Kleptocracy Asset Recovery Initiative, founded in 2010, had ever been involved in – in Irish, Belgian, and Luxembourger banks.

Months later, however, the money has languished. With a new president – Shavkat Mirziyoyev was elected, in Karimov-like fashion, with nearly 90 percent of the vote in early December – Tashkent has demanded the return of the funds in question, claiming the monies rightfully belong to the government. Washington, meanwhile, remains understandably wary of returning the funds outright; not only is Uzbekistan ranked 153 out of 168 countries in Transparency International’s Corruption Perceptions Index, but there’s little likelihood Mirziyoyev’s presidency will roll back corrupt practices entrenched in the country’s governing structures.

Landing Lucrative Leverage

As such, the US – and the West, more broadly – has suddenly found itself with a massive means of leverage over Tashkent, currently gripped by the economic malaise wracking the region. With nearly $1 billion to dispense, Washington and its European partners, especially over the final six weeks of the Obama administration, have stumbled across perhaps their finest tool for helping direct democratization efforts in one of the world’s foremost autocracies – and a potential blueprint for reining in like-minded kleptocrats.

Thankfully, rather than creating a new model for repatriating the funds, a precedent already exists for repatriating tens of millions of dollars in bribery funds to populations sloughing under post-Soviet kleptocracies. Just over a decade ago, the U.S. issued a formal indictment under the auspices of the Foreign Corrupt Practices Act, Washington’s foremost vehicle for preventing Americans from bribing foreign officials. The 72-page indictment – which would wind up as the eventual basis for the Hollywood film Syriana – alleged a thread of sordid links between American banker James Giffen and a series of “very senior officials” of the Kazakhstani government. (The case was sparked, ironically, by Kazakhstani governmental officials trying to find dirt on their dwindling political rivals.)

The officials out of Astana remain unnamed in the indictment, but their code-names were, and remain, open secrets. As Washington detailed, Giffen parlayed his position as official adviser to Kazakhstani President Nursultan Nazarbayev – now the lone Soviet-era autocrat remaining in power – to help Western firms access Kazakhstan’s markets and hydrocarbon reserves. In return, according to the indictment, Giffen helped direct over $80 million worth of funds, goods, and travel to Nazarbayev and his inner circle, ranging from fur coats and tuition at George Washington University for Nazarbayev’s daughter to speedboats and snowmobiles for the only president Kazakhstan has ever known. (As one American official later described, Nazarbayev was the most “notoriously corrupt” leader “in the free world.”) Eventually, Giffen’s ability to ply Nazarbayev ran afoul of American authorities – even if Giffen was eventually absolved of his role, with the presiding judge noting that he was a “hero” for helping direct regional American interests.

Financial Payments and Finding Precedent

Nonetheless, the case provided all of the ingredients for a new model of repatriation to take shape. With the encouragement of the World Bank, American and Swiss officials – as well as the Kazakhstani officials suddenly looking to save face, and prevent any further embarrassment – agreed to set up the BOTA Foundation, an independent entity dedicated to providing services for Kazakhstan’s under-served children. In keeping with its push at independence, US and Swiss officials sat on the Foundation’s board, but board representatives from Kazakhstan were limited to members of civil society groups. Fiscal oversight for the fund, meanwhile, came from not just the board, but also from the World Bank and all three governments. All told, the BOTA Foundation, during nearly six years of operation, proved markedly successful, redirecting the frozen funds – that is, those gleaned via corrupt practices in Astana – to over 150,000 Kazakhstanis in need of health, education, and social services.

As of yet, there’s not yet been a replication of the BOTA Foundation’s services elsewhere, either due to a lack of funds or lack of willingness from the local government. In Uzbekistan, however, the U.S. – along with Switzerland, Ireland, Belgium, and a handful of other Western nations – is suddenly presented with an opportunity to not only reprise the BOTA Foundation’s model, but to expand upon the impact to a far greater magnitude.

At present, Tashkent’s intransigence presents the main obstacle to redirecting such funds toward Uzbekistan’s neediest populations, alongside the suffocating operating atmosphere for the country’s civic society. However, the precedent modeled by the BOTA Foundation – which has seen relatively scant coverage, and certainly no Hollywood films in its honor – presents a precedent for Washington and the West to expand its anti-bribery efforts beyond simply freezing assorted accounts. With hundreds of millions of dollars awaiting allocation, the US is potentially in a better position than it’s ever known to affect anti-kleptocracy efforts, especially across the post-Soviet space, moving forward. And if a reprise of the BOTA Foundation’s success can work in Uzbekistan – a case of this magnitude, no less – there’s every likelihood Washington’s model can help tamp down rising kleptocracy elsewhere.

Casey Michel has worked as a journalist and researcher in both the U.S. and the former Soviet Union.