Professor Kristian Lasslett

Last week, ‘behind closed doors’, Gulnara Karimova stood trial on new criminal charges. 

Karimova’s Swiss lawyer, Grégoire Mangeat, claims she has been denied access to her legal team.

Karimova is currently serving a ten year sentence. 

Back in August 2015 she was initially found guilty of extortion, theft, and tax evasion by the Tashkent Regional Criminal Court. Two years later Karimova was reportedly found guilty of embezzlement and extortion.

Her conspirators Rustam Madumarov and Gayane Avakyan have been prosecuted too, curiously in a military court, and sentenced to seven and six years imprisonment respectively.

Scholar, Alisher Ilkhamov, observes, ‘all three court hearings on her case in Uzbekistan and those of her accomplices were held behind closed doors; the public was provided no access to the full-text indictment, the court ruling, or the hearing itself’.

The Current Case Against Karimova

The fresh prosecution of Karimova relates to the embezzlement of state assets and extortion. 

At the heart of the state’s case are two cement factories owned by Kuvasaycement JSC and Bekabadcement JSC. 

The Prosecutor-General claims Karimova, in collusion with other persons, acquired state-owned shares in these cement factories at a reduced price. 

She is then said to have sold the shares to foreign entrepreneurs, and patronised their illegal activities. 

The foreign entrepreneurs referred to anonymously in the state’s case against Karimova appear to be shareholders in the Visor group, a large Kazakh based conglomerate closely associated with oligarch Aidan Karibzhanov.

The Visor investors categorically reject any allegations of impropriety. 

We know this fact because the partners in Visor, including Karibzhanov, launched international arbitration proceedings against the Government of Uzbekistan back in 2013. 

Bribery and Expropriation Allegations

In this ongoing arbitration proceeding it is argued by the Kazakh claimants that shares purchased from Gulnara Karimova by the group were wrongfully expropriated by the Uzbek state in a series of actions taking place between 2010 and 2013.

To date, the arbitration has divulged one substantive public document that gives an important insight into the business deal which appears now to form a key part of the state’s case against Karimova. This record is a tribunal ruling on jurisdiction.

The ruling notes that the Kazakh investors purchased the two cement factories in Uzbekistan owned by Bekabadcement JSC (BC) and Kuvasaycement JSC (KC), for US$33.98 million. 

Visor also evidently contracted to pay businessman Mr. Nurlan Bizakov a commission of US$3 million for introducing the group to this opportunity.

The shares in both joint stock companies were held through a Cyprus entity United Cement Group (UCG), and its Cyprus subsidiaries.

Image: Diagram of the Visor holding structure (source ICSID 2017)

Between 2006 and 2010 it is claimed Visor invested ‘over US$127 million in the modernization and improvement of BC’s and KC’s production facilities’.

It is also claimed by the investors that they secured a loan for the project ‘in excess of US$320 million from Kazkommertsbank (the largest bank in Kazakhstan)’.

Based off the arbitration record it is unclear what percentage of the investment, if any, came from equity, and what percentage was debt financed. However, the investors’ claim for damages of ‘no less than US$500 million’ is primarily based off the Kazkommertsbank loan, and subsequent accrued interest.

Visor argue it was a ‘good faith investment in the Uzbek cement industry, that led to a campaign of harassment by the Uzbek Government’. This campaign of harassment ‘involved arrests, the seizure of company documents and assets, and the bringing of criminal and civil proceedings against Claimants’ companies and certain of the managers of those companies’.

According to arbitration records 51% of Bekabadcement JSC was allegedly expropriated, and 12% of Kuvasaycement JSC. 

The Government of Uzbekistan has opposed the claim. They argue Visor, through its offshore subsidiaries, embarked in securities fraud, corruption and other illegal activities. 

The corruption allegation relates specifically to Gulnara Karimova. 

The Government of Uzbekistan argues that there was an overpayment to Karimova of approximately US$8 million by Visor, which was disguised within the price for their acquisition of shares in the cement factories. 

This, it is argued, constitutes a bribe in violation of Article 211 of Uzbekistan’s Criminal Code.

It is also claimed by the Government of Uzbekistan that the claimants alleged subsidiary, Caspian Resources, coordinated systematic bribing of numerous Uzbek Government officials. 

In its decision on jurisdiction the arbitration tribunal rejected these claims, arguing that at the time the shares were acquired by Visor in 2006 there is no evidence Karimova was a state official. This was deemed a prerequisite for proving corruption. Also, they argued, the state had failed to prove that any inflated sum paid to Karimova was in fact a bribe.

Tellingly the tribunal observed that the Government of Uzbekistan ‘did not (a) provide witness testimony from Ms. Karimova who at the time was in the government’s custody or (b) explain why this would not have been possible’. It was also noted that the government had ‘not made available in this proceeding the results of any governmental investigation that may have taken place into Ms. Karimova’s role … [and] has not made available the testimony of other individuals known to assist Ms. Karimova in her business dealings and who may be in Respondent’s custody or otherwise accessible to it’.

Reading Between the Lines: The Case Against Karimova

So how do we make sense of all this?

First it is important to acknowledge that when it comes to the business affairs and political machinations of elite officials, often there is a significant difference between what is presented publicly, and what is really happening privately. 

We can only make a number of evidence based deductions from data on the public record. 

Adopting this approach four key points can be made. 

  • The Cement Case is not necessarily Concrete

Treat the claims and counter claims in the arbitration case with caution. Facts disclosed so far indicate it is not an open and shut case. 

For example, it is unclear how much the Visor partners directly invested in these two factories from their own funds. 

The Government of Uzbekistan alleges they ‘used loans from Kazkommertsbank … to fund their acquisitions’. They did not, it is argued, contribute capital or equity to obtain the loans.

It appears the Kazakh investors do not contest this assertion, arguing it is ‘entirely proper to rely upon credit facilities to make an investment.

Certainly the damages claimed, in large part, appear to stem from the US$320 million Kazkommertsbank loan.

But as the investors argue, a position supported in the ruling, loss of loan capital is not a barrier to making a claim. 

The loan however appears an especially large amount for factories that on the face of it were worth around US$33.98 million. 

To put it in context, a recent news reports in Uzbekistan notes the construction of a brand new cement factory in Jizzakh, with a production capacity of 1.2 million tons, for the amount of US$150 million.

Another cement factory in Jizzakh, with a production capacity of just over 1 million tons, has a reported price tag of US$115 million

To secure the US$320 million a Visor group company, Caspian Cement LLP, allegedly guaranteed the loan.

The tribunal ruling suggests the loan was used to increase production capacity in the two cement plants.

Public commercial data points towards only modest increases in production at both facilities.

So more needs to be known about what happened to the US$320 million. 

Why was such a large sum needed to increase production capacity in Bekabadcement and Kuvasaycement, given it appears that this was enough to build two new facilities from scratch? 

Can evidence be produced that the US$320 million went into the Uzbek cement facilities? What has happened since expropriation? Did Visor declare force majeure? Has the bank claimed collateral from Caspian Cement LLP? 

These are all pertinent facts for determining the integrity of the claim against the Government of Uzbekistan. 

Put simply, we do not know whether this is a case of a genuine investor, who then faced lawless expropriation at the hands of a state with form, as Visor suggests. Or is their merit to the state’s claim that foreign investors, working in league with politically powerful individuals in Uzbekistan, purchased modest assets in order to then secure, and abuse, a US$320 million loan facility provided by Kazkommertsbank.

It may be that a clear answer is never provided, given the scope of arbitration hearings, and the limited public record such hearings leave. 

  • The Evidence Against Karimova

The arbitration ruling on jurisdiction raises some key questions over the state’s case against Karimova. Back in 2017 the Government of Uzbekistan failed to convince the arbitration tribunal that this was indeed a case of bribery and securities fraud. 

So its worth asking, two years later what has changed that would allow the Government of Uzbekistan to successfully secure a criminal conviction? 

The tribunal made a point of noting the Uzbek government’s failure to call Karimova as a witness, or present evidence from its own investigations into the alleged crimes. 

This may be a sign that persuasive evidence simply did not exist. 

Or it could be the case that evidence does exist, but were it made public in a forum where information may leak (i.e. not a controlled closed door court sitting in Tashkent), it would raise questions over the complicity of state officials still in power (this was a headache experienced during the Karimova telecom bribery scandal). 

For its part Prosecutor General claims the current criminal case is a result of new information provided by an international company. 

The name of this company has been withheld. 

Therefore, it is impossible to consider the motivation and credibility of this international source. It remains an issue in need of careful scrutiny.

It also needs to be asked that if smoking gun evidence has been made disclosed, how is this information being used to protect the public purse in the ongoing proceeding with Visor?

  • Legitimate Concerns, Illegitimate Ends

None of the above is meant to suggest Karimova is innocent. 

Her crimes against the people of Uzbekistan have been documented in courts and prosecutions taking place in the Netherlands and United States, that are free from significant levels of political influence, and operate according to a high standard of proof. 

Unfortunately prosecutions in Uzbekistan, especially in political cases, are still corrupted by undue forms of influence. Both the wealthy and poor, the dirty and the clean, have suffered as a result of politically curated decision making in the court system. 

In this instance there are several reasons to imagine undue influence may be playing a part in the proceedings.

Gulnara Karimova is a potential liability for the current ruling circle. 

She knows those in power have long histories. And Karimova has shown a preparedness to speak very publicly about those histories in an effort to damage rivals, using her privileged access to information. 

There is a risk, therefore, that Karimova is being prosecuted not on the basis of just deserts, but in order to silence an ousted elite possessing kompromat. 

There is another risk. 

The prosecutions are being deployed by the Government of Uzbekistan to increase pressure on Karimova and her family, so they consent to the seizure and return of her assets abroad.  

This does not mean the allegations of bribery are without merit. Karimova has form after all. But there is certainly a clear risk that criminal justice is being politicised to leverage this evidence for improper ends.

This leads to the fourth and final point.

  • Seizing Assets in the Dark

Those that inhabit the highest echelons of political and economic power exist in a fractious environment, marked by delicate balances of power, where today’s ‘high priest’ may be tomorrow’s convict. When this happens assets are rapidly cannibalised and distributed among the victorious groups. 

The limited evidence on the public record indicates that Karimova’s domestic assets in Uzbekistan have been seized, and redistributed. To whom, and under what conditions, is a matter currently cloaked in secrecy. 

It should not be. If these assets are the result of crimes committed against the Uzbek people, this is their property. And the government should make public account of how it has responsibly managed these assets to remedy the harms suffered by the population as a result of the crimes Karimova committed. 

The risk is, these assets will be recycled, through various convoluted means, into the shadow holdings of powerful politicians, or closely aligned oligarchs. 

The government has also made no secret it is now after Karimova’s offshore assets, which are valued at approx. US$1.5 billion. This is a considerable sum on any scale. 

However, they will require the cooperation from governments and courts in which these assets are based. That is not so straight forward. 

There is a growing body of principles and precedent on responsible international asset return. Put simply, governments globally agree stolen assets should be returned in a transparent and accountable manner, for the benefit of those who suffer as a result of this illegal conduct. 

These standards are being bulwarked by an increasingly savvy civil society contingent, who want to see stolen assets benefit and empower harmed populations. 

Already Uzbek activists have begun setting out robust standards that should guide the return process. 

It will be critical in the following months and years that strong scaffolding is used to return these assets to the people of Uzbekistan, with safeguards in place to guard against elite cannibalisation. 

As fresh proceedings get underway against Karimova vigilance will be required, and a healthy sense of scepticism for the facts that are drip fed to the media. 

The reality is a credible record of evidence exists that Karimova commanded a state-corporate network which embarked on illicit activity that harmed the people of Uzbekistan. However, achieving justice will prove a delicate affair in a heavily politicised context where elite groups cannibalise each other’s assets, and use influence over the criminal justice system to oust rivals.

Kristian Lasslett is Professor of Criminology at Ulster University and sits on the Board of the International State Crime Initiative. He is an investigative researcher who works on corruption and kleptocracy in Central Asia, Europe and the South Pacific. His most recent book Uncovering the Crimes of Urbanisation was published by Routledge in 2018.