The European Union and Central Asia: Economic Cooperation vs. White-collar Crime

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by Guest on 9/17/2013

The following is a guest post from Michael Laubsch, Executive Director of the Eurasian Transition Group.

Economic cooperation between the EU member states and the Central Asian republics has expanded steadily beyond its initial focus on energy resources. But besides new perspectives in trade, the EU is also increasingly becoming the site for criminal investigations against individuals from Central Asia like Rahat Aliev, the Kazakhstani former presidential son-in-law is currently accused of not only white-collar crime, but also murder and abduction. Recent investigations by EU prosecutors into cases like the Teliasonera debacle (Uzbekistan), Maxim Bakiev’s infamous UK asylum application (Kyrgyzstan) and the Aliev and Abylazov scandals (Kazakhstan) show that Central Asia’s oligarchs take advantage of EU laws well beyond the banking system. Many former elites forced to leave their countries because of criminal actions or new political constellations now often play a new role as political refugees within the borders of the EU.

Meanwhile, Europe has its own problems. Much of the EU public has lost faith in the future of Brussels’ institutions, especially in terms of the structured EU banking and financial crises that have left many individual savers fearing they will be left with nothing after their banks collapse. Public discussion of alleged money laundering and illegal financial transactions by Central Asian billionaires further erodes trust between the EU and its people.

This sometimes shady mix of financial interests, business and politics can be difficult to untangle, complicating many investigations inside the EU because often EU authorities can only partially categorize and sort those disparate interests. Further, EU instruments and institutions for an effective fight against organized crime and money laundering often cannot fulfill their obligations; for example Europol, Eurojust or the anti-corruption agency OLAF are often hindered from opening cases and investigations. These bodies, often criticized as bureaucratic and ineffective, can only take an active role when they are asked to take over investigations by a Union-level authority–the EU Commission or the European Parliament–especially when investigating crimes committed in multiple EU member states. The agencies do not have automatic jurisdiction. In cases of bi- or multinational investigations problems of communication, information and data exchange arise frequently between the national authorities where supranational agencies could work more effectively. National authorities must cooperate better with the EU entities to eliminate the danger of a possible interference from national political or economic interests, as the Aliev case covered below will illustrate.

The Eurasian Transition Group spoke with Juergen Roth, an internationally renowned journalist and commentator on organized crime, corruption, money laundering and terrorism to discuss all these problems. In his view, the connections between citizens of the EU, their personal assets and liability for managing problems of banks and “financial transactions made by billionaires from the CIS region only became public with the so-called offshore leaks [the Karimova telecom scandals] earlier this year, but the system itself has been in place for a long time already.”

We see an increasing number of concrete examples of oligarchs who make the most of the sometimes ambiguous legal position of the banking sector in order to launder money on a massive scale. Mr. Roth believes that by now many member states of the EU would like to put a stop to those actions, but at the same time countries like Luxemburg or Great Britain reluctant to pass stricter laws governing tax havens. An additional danger arose with the new EU member states from Eastern Europe: beside the “offshore” variation, at times corrupt elements within the new EU member states actively support money laundering not only outside, but inside the Union as well.

In some cases, EU authorities have successfully coordinated actions against CIS-oligarchs accused of financial crimes. The recent arrest of the Kazakh billionaire Mukhtar Ablyazov in France might serve as an example. He was hunted by British investigators when he fled the country after a London High Court sentenced him to prison for contempt of court. The banker has been accused of embezzling $6 billion from Kazakhstan’s BTA Bank. The bank fought to get the money returned through a series of civil court battles, opposed at every stage by the businessman, who claimed he was the victim of political persecution as a result of his opposition to Kazakhstan’s President, Nursultan Nazarbayev. The international police agency Interpol said on its website Ablyazov was wanted by Russia on separate charges including “large scale fraud”, money laundering and forgery. Ablyazov spent time in Russia between 2003 and 2005. He had been put on a so-called Interpol “Red Notice,” which is similar to an international arrest warrant.

Perhaps most hated of the former oligarchs now living in the EU is the son of the former President of Kyrgyzstan, Maxim Bakiyev. He is accused of stealing state-owned assets from his country and depositing billions of € with the active help of EU banks to offshore accounts. Although Kyrgyz authorities are in close contact with their counterparts in the US and EU, only a court in the US meanwhile ruled to freeze Mr. Bakiyev’s assets until a final legal clarification of the accusations against him has been made. In Europe, however, legal investigations and also legal requests from the Kyrgyz side are often delayed with the argument that the accusations against Mr. Bakiyev might be politically motivated. Even with some proof for an initial suspicion of a liability leading to prosecution, authorities in cities like London or Frankfurt shy away from starting official investigations.

Of all the cases, however, the accusations against Rakhat Aliyev could have an even stronger impact. Since 2011 the prosecutor’s office in Vienna has been investigating the former Ambassador of Kazakhstan in Austria in the case of double murder, unlawful detention, embezzlement, money laundering and corruption. Since the accusations became public, the so-called “Causa Aliyev” was marked with scandals, inconsistencies and rumors of bribe money for politicians and civil servants. Even a parliamentary committee of inquiry was held to deal with the case. During the first phase, Austria was the prime battlefield, because Mr. Aliyev at that time lived in Vienna and Lower Austria, then followed by Malta, where he is now residing, and Germany, where legal investigations concerning money laundering started in 2011.

Roth said that he “cannot comprehend the actions of national and EU authorities in such cases anymore.” In his view super-rich like Aliyev have transferred illegal earnings to the EU for decades now. The journalist also underlines that people like him are friends of influential politicians. According to Roth, Austria is a good example for this assumption.

Mr. Roth, based on his own investigations and official files, describes those special forms of “preferential treatment” vividly (though of course the presumption of innocence has to be protected in the case of Rakhat Aliyev until a verdict has been ruled). For example, the Austrian Parliamentary Committee of Inquiry 2009 discovered that the residence permit of Mr. Aliyev might have been issued without a legal basis. According to documents, he applied for a residence permit on August 22, 2007 in Vienna, but the authorities there denied issue because of the ongoing legal accusations against him. Mr. Aliyev then applied again in Horn, Lower Austria, because he knew the local governor there quite well. In Horn, a residence permit was directly issued. The parliamentary committee could not examine whether or not money exchanged hands in the process, especially after the committee was forced to close its work by the ruling parties. An Austrian newspaper reported that “there were rumours about a suitcase filled with € 2 million delivered to a party headquarters.” (Die Presse, 11/25/2009)

A similar incident was reported when Mr. Aliyev received a so-called “foreigner’s passport,” with which he could leave Austria legally. According to the Austrian news magazine “Profil”, Austrian authorities requested Aliyev leave the country when the evidence against him became too serious. Because he only had received the residence permit but no travel document, a foreigner’s passport was issued without further delay that would allow him to leave the country for Malta. Austrian lawyers representing the widows of two bank managers accuse Aliyev of abducting and murdering them; they claim the passport was not legal, because under Austrian law (§ 88, Fremdenpass-Gesetz) “the issue has to be in the interest of the Republic.” They add that, “it is more than grotesque, taking into account that a court in Kazakhstan passed a final sentence on Aliyev and the prosecutor in Vienna has numerous official investigations against him. As it is excluded that the Republic of Austria has a positive interest in the person of Rakhat Aliyev, there is at least a close suspicion that the passport was issued unlawfully.” Meanwhile, the Austrian Office for Administrative Control in Vienna examined the decision to issue the residence permit and passport and concluded that there were a number of administrative irregularities. In a public statement, the responsible official said that in the Aliyev case “a violation of law took place.”

Roth also concluded that more facts could have been revealed with the help of the parliamentary investigation if it had the chance to continue: there were documents among the files on Aliev that were not delivered to the Parliament in Vienna that included politically explosive material. The missing documents came from a 2007 investigation by the Austrian Federal Crime Office Department for Money Laundering and were sent in a report to the prosecutor’s office in Vienna with the remark “Please present documents immediately.” According to the file, officials of the German Federal Crime Office already informed the Austrian law enforcement bodies back in 2005 via Interpol that Mr. Aliyev and his companies were deeply involved in money laundering. According to Roth, a court in Vienna ruled a temporary injunction already in June 2007, freezing five of Aliyev’s bank accounts with a credit balance of € 80 million (verdict Landgericht Wien, AZ 221 Ur 95/07). The Privatinvest Bank also gave circumstantial evidence to the Austrian Crime Unit that Aliyev and companies related to him tried to make transfers that were stopped by the bank due to suspicion of money laundering. According to them, Aliyev tried to empty an account with nearly € 12 million.

Those tips led investigators from Austria to Germany. According to public case materials, Mr. Aliyev supposedly fed assets through his companies A.V. Maximus SA and ARGGOCOM, registered at the British Virgin Islands, and his Austrian company A.V. Maximus Holding AG. The money frozen in the account in Vienna was intended to circulate between A.V. Maximus Holding AG and its subsidiaries.

In Germany, Mr. Aliyev purchased via Armoreal Trading the German company Metallwerke Bender Rheinland GmbH in Krefeld and appointed his new father-in-law M. Shorazov managing director. The company was established in 1931 and produced mainly aluminum and copper alloy. According to lawyers, Aliyev and Shorazov did not plan to extend this production, but intended instead to use the company for metal and carbon dioxide emission certificate trade and, through transfers to other company structures, as a money laundering outfit.

An investor from Dubai eventually took over the German company in April of 2011. According to the files, the sale to one “SF Holding Ltd.” was economically incomprehensible: € 10 million were paid for a financially shuttered company and according to the bill of sale, Metallwerke Bender Rheinland GmbH was liable for the payment of the purchase price alone. According to legal authorities in Germany, it may be supposed that Mr. Aliyev himself was behind the investment, although evidence is not yet conclusive. The managing director of SF Holding meanwhile was arrested in Milan, Italy under the suspicion of massive tax evasion.

The investigations against Aliyev in Germany and Austria assume that he closed his business network in these countries and withdrew his assets to Malta. Investigators believe this is why the Austrian holding company A.V. Maximus was taken over by the Maltese A&P Power Ltd. in March 2011. Documents listed at the prosecutor’s office in Vienna and Malta make it reasonable to suspect that the true owner of this company is in fact Mr. Aliyev’s wife, Ms. Shorazova.

All assets of Rakhat Aliyev and his family in Malta were temporarily frozen by a court decision in June 2013. The judge detailed in his explanation that those assets were suspected of being part of a large-scale money laundering system.

Also, since 2011 the prosecutor’s office in Krefeld, Germany has been investigating the case of Metallwerke bender Rheinland GmbH in the department for organized crime. The office for tax investigation in Duesseldorf works on the case separately, mainly with regard to the suspicion of turnover tax evasion.

Authorities in Malta have already stated publicly that due to the complexity of the case the staff on the island could not do the investigation alone; in fact they would need EU support. Cooperation between the prosecutor’s offices in Vienna and Krefeld doesn’t seem to run smoothly, either, especially concerning the exchange of investigation results and files. Therefore, for the complex, multi-national case to ever be prosecuted it will be imperative to include EU authorities like Eurojust, OLAF and Europol. With their help, the investigations against Mr. Aliyev could be finished faster and more effectively, without the fear that they might be slowed down or obstructed by national or personal interests. According to Roth, only EU authorities could be successful in a case like this one because only they could force coordination between all the involved member states; in Roth’s view, there is no alternative. Only then a court prosecution could assure the victims that EU justice is working effectively. If EU authorities finally reach a conclusion the ongoing public scandal around Aliev could finally come to an end. A successful prosecution could show that the European Union is not only a union of business, financial and trade interests, but that it also defines itself through common values agreed to by all member states.


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