The Belgian Appeal Court delivered a landmark ruling on Tuesday (16 November) in what Kazakhstan’s legal representatives described as “one of the biggest frauds in the history of international arbitration.”
Since 2010 Kazakhstan has been locked in a legal battle with the Ascom Group, a multinational company owned by one of Moldova’s richest oligarchs: Anatoli Stati and his son and Gabriel (the Statis).
In 2013 the arbitration tribunal awarded approximately €500m to the Statis under the auspices of the Energy Charter Treaty (ECT), which is designed to protect foreign investors in energy sectors of signatory countries including Kazakhstan.
The treaty is often used to claw back money if moves are made against fossil-fuel projects, hindering the energy transition, with a group of MEP’s calling for the EU to pull out of the treaty altogether.
But justice minister Marat Betekayev explained to EUobserver the ECT is also abused by savvy investors that start a claim in Stockholm, London or Washington to make a profit. “These investors do not intend to do anything positive for the country. They just come in to extract money.”
Especially emerging economies with poorly developed justice systems are vulnerable, he said.
“It’s hard to accuse Germany of wrongdoing in arbitration. But challenging Nigeria or Uzbekistan is easier,” Beketayev said.
“My job is to make sure we are closer to Germany. Not Nigeria. We created the court of Astana International Financial Center, and invited retired English judges to hear cases. It takes years building a reputation, we decided we would borrow that reputation.”
“Because of the Statis inaccurate and fraudulent statements and the fact they concealed numerous pieces of evidence during the arbitration proceedings, Kazakhstan was deprived of its right to be heard,” the Belgian court ruled.
The Statis control hundreds of subsidiary companies around the globe, and their business empire featured in the Panama Papers, a financial leak detailing the use of tax havens and financial dirty tricks.
Tuesday’s ruling is an important step in a case that spans multiple continents and goes back to 2006, when the Stati’s, that had two purchased companies Tolkynneftegaz LLP (TNG) and Kazpolmunay LLP (KPM), proceeded to build a new liquified petroleum gas plant.
After multiple inspections, Kazakhstan terminated TNG’s and KPN’s contracts in 2010 when it became clear no progress was being made.
The Statis then launched an international arbitration case, claiming that Kazakhstan had waged a “campaign of harassment” that caused a “liquidity crisis,” resulting in the failure of the project and a loss of investment amounting up to €2.5bn.
An arbitration tribunal composed under the rules of the Arbitration Institute of the Stockholm Chamber of Commerce in 2013 ruled against Kazakhstan and found the country liable to compensate the Statis around €500m.
The arbitral tribunal concluded Kazakhstan had violated the “fair and equitable treatment standard under the Energy Charter Treaty.”
The Statis then launched a series of arbitration cases in the US, Belgium, the Netherlands, Italy, and Luxembourg that all confirmed that Kazakhstan under the ECT was liable to pay the €500m award. This led to the freezing of Kazakhstani assets worth a total €5.5bn.
These expensive legal proceedings were funded and, according to the Kazakh defence, “de facto managed” by US hedge funds and investment bankers that funded in the arbitration as a third party, and would share in the potential rewards the Statis would be awarded.
However, fast forward to 2021, and the Belgian court has now found it “indisputable” that the previous arbitration “relied on evidence that is now known to be inaccurate and materially misstated.”
The Belgian ruling confirms most of the Kazakh defence: that the Statis have obtained damages worth up to €500m and “deliberately misled” the Swedish court and the arbitrators of KPMG in order to do so, thereby annulling the award.
The court further found that “the investment of the Statis in Kazakhstan was done in bad faith”, agreeing with the defence that they in fact funnelled away “hundreds of millions” through overpriced transactions to companies that were presented to auditors and the courts as third parties but were, in fact, covert off-shore Stati shell companies.
“We will not rest until the Statis and all of their co-conspirators are brought to justice,” Beketayev said in a statement on Wednesday.