The Perils of Investing in Kazakhstan

by Nathan Hamm on 4/23/2007 · 2 comments

Kazakhstan is generally regarded, for good reason, as far better than its neighbors for foreign investment. In fact, over at neweurasia, Ben has a new post on a new investment fund being set up. The New York Times reports though that Kazakhstan can be just as dangerous as anywhere else in the former Soviet Union for foreign investors.

Kazakhstan authorities had issued an arrest warrant for Mr. Seidenfeld after a Kazakh citizen accused him of siphoning $40,000 from his Almaty company, pocketing funds meant to buy a piece of machinery. After a series of postponements, preliminary hearings for Mr. Seidenfeld’s criminal trial were delayed again last week for at least another month for translation of court documents.

According to PricewaterhouseCoopers, the equipment in question is located in the offices of Seidenfeld’s company, making the case sound rather fishy.

Seidenfeld says that trouble began when he insisted on an open auction to sell his company, a subsidiary of a Moscow-based telecommunications company, Golden Telecom. Competition forced the sole Kazakhstani investor to raise his initial offer by $5 million. Golden Telecom employees back up his story.

The Times says that Almaty’s foreign investor community is worried that the case signals that powerful local parties can use the legal system to intimidate outside investors who anger them. One American businessman interviewed for the story said that the ability of local partners to use the judicial system to imprison foreign investors “creates an almost intolerable atmosphere for foreigners to invest here.”

The case has the attention of several members of Congress, including Senator Harry Reid and Representative Shelley Berkley of Mr. Seidenfeld’s home state of Nevada. And with a decision on whether or not Kazakhstan is to chair the OSCE in 2009 looming in the not too distant future, one cannot help but wonder whether or not this case will make it tougher for the US government to support the bid.

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– author of 2991 posts on 17_PersonNotFound.

Nathan is the founder and Principal Analyst for Registan, which he launched in 2003. He was a Peace Corps Volunteer in Uzbekistan 2000-2001 and received his MA in Central Asian Studies from the University of Washington in 2007. Since 2007, he has worked full-time as an analyst, consulting with private and government clients on Central Asian affairs, specializing in how socio-cultural and political factors shape risks and opportunities and how organizations can adjust their strategic and operational plans to account for these variables. More information on Registan's services can be found here, and Nathan can be contacted via Twitter or email.

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Joshua Foust April 23, 2007 at 8:01 pm

Just wait until Joe Biden hears about how the broader Middle East is suppressing investor freedom. There will be mad crazy angry letters written then.

Also, any surprise the Congresspeople from Nevada are sticking up for their own?

Peter Gabr May 15, 2007 at 6:02 am

Trial over American
# 14 (329) dd 16.04.2007, «MEGAPOLIS» newspaper
Almaty district court has initiated preliminary hearing on American Menachem Seidenfeld, ex-General director of OJSC “Arna” (“Ducat” at present). “Megapolis” has announced that his is accused of major appropriation and conversion of entrusted property.
Almaty Directorate of Public Prosecutor took materials to the court. It is said in these materials that Seidenfeld committed criminal offense expressed in theft of property by false pretences and major abuse of confidence. It is referred to five million stolen tenge.
After one year and half of international detection American was captured in Russia, in Blagoveshinsk, and thank to concerted actions of ROK and Russian General Prosecutor’s Offices, in November 2006 he was extradited to Kazakhstan. He saw the 2007 in detention facility of Almaty. In the mean time prior to the court some articles appeared in American press mainly giving coverage to defendant’s viewpoint, Kazakhstan examining officials’ viewpoint was not covered. Furthermore, it was pronounced that American is not abused and the case against him was trumped-up. There was attempt to turn this occasional criminal into more global, political issue («Megapolis», «American press», # 10 dd March 19, 2007)
At the preliminary hearing in Almaty defendant’s lawyer made several motions, at that on formal signs: challenging the person representing an interests of OJSC ‘Arna’, applying for cancellation of examination results, dismiss a charge and release defendant from custody.
Procuracy representative in his turn suggested dismiss all asserted petitions. The judge sent the case for supplementary investigation. 15 days was given to both parties for decision appeal …

Vladimir Kal’t
To close America
The fate of USA citizen Menahem (Mark) Seidenfeld, accused by Kazakhstan authorities of 140 million tenge material damage to JSC “Arna” (trade mark DUCAT), is determined these days. Next week Almaty Procuracy is to attain a verdict with regard to American case.
Our newspaper has already written about Seidenfeld and his shady financial operations (“NG” #46 dd November 17, 2006). We remind that Mark Seidenfeld run his business in Kazakhstan beginning from telecommunication market, and was considered as placeman of European Bank for Reconstruction and Development. “Arna” (DUCAT) was the first telecommunication company in Central Asia invested by EBRR. It made a great contribution to telecommunication service development in Kazakhstan.
But… Now it is surprising how was it possible to allow foreigners to control sector of Kazakhstan national interests, it suffice to say that DUCAT provided and provide with communication the Government, MIA, CNS. Just in March 2004, Mark Seidenfeld, alias General director of ‘Arna” JSC, was retired and went out to Moscow. In his absence only a major stealing from cash was revealed in the firm, at that time it was turned onto his biography and management style.
According to his own application record, he got an education in Israel, where at Shekhebar institution he studied jurisprudence, Israel Law, Torah, philosophy, psychology, and consular. In addition to native English language he is fluent in Russian and Hebrew, knows basic Dutch and Czech.
He worked in Moscow (1995-1998), Eastern Europe (1997-1998). He wrote that being a manager he was able to “re-structure business into self-supporting and on the basis of eastern practice he incorporated the outsourcing system, system of bonuses and payments”.
Saidenfeld told DUCAT employees that he worked in Czech synagogue, settled kosher meat production in Moscow. With regard to management style of Seidenfeld it was described in detail in management acknowledgment of “Arna” (DUCAT) addressed to Kazakhstan Procurator General. It was said namely that under leadership of Saidenfeld “Arna” JSC run into debt to “Kazakhtelecom” for 511 455 489.99 tenge. Debt information was not reflected in financial statements presented to Kazakhstan Stock Exchange. In subsequent it made an influence on evaluation of companies shares and decrease in own equity of “Arna” JSC for amount of 147 714 400.00 tenge.
In the course of hearing a quite interesting facts were found out, evidencing misfeasance and financial fraud. For instance, “love-financial story” with Simton Projects Limited (this firm is registered on Cyprus) cost to “Arna” 250 thousand Dollars, 150 thousand out of which were spent on rent of non-existent communication lines. Criminal conspiracy with company was compounded by the fact that traffic exchange was effected not by the SPL itself but Russian West-Call, the shareholder of which is… М.Seidenfeld.

March 16, 2007 #10 (458)
«New Generation» Newspaper

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