Dec 09

Transparency, Corruption and Offshore Finance in Central Asia

                                                      photo ©Rustem Uanov (RFE/RFL)


On the 22nd of November the University of Exeter held a one-day workshop with twenty five John Smith Fellows from the five post-Soviet Central Asian republics. The core thematic of the workshop focused on ‘Governance and Development in Central Asia: local and global aspects’. Within this theme, our panel explored the topic on Transparency, Corruption and Offshore Finance in Central Asia.

Central Asia is a resource rich region endowed with petroleum and mineral resources. Yet despite the possession of resource wealth, states have experienced difficulties in governing their natural resources fairly and generating broad-based economic growth. This wide phenomenon is largely known as ‘resource curse’, when developing economies blessed with natural resources perform worse that countries without such resources.

The cause of the negative relationship between natural resources and economic development has been often associated with weak institutions and corruption. This is because, the income of these institutions is often misappropriated by corrupt leaders and officials instead of being used to support economic growth and development in the country.

Such dynamics are illustrated with the multimillion-dollar “Kazakhgate” bribery scandal in 2003. Prosecutors in the United States accused James Giffen of bribery paid to ‘senior officials’ (presumed to be Nazarbayev and his entourage) to secure contracts over the Tengiz oil fields for Western companies in the 1990’s. Giffen and his company allegedly took cuts of successful transactions, and used a complex network of over 30 offshore bank accounts and shell companies to direct unlawful payments from these oil companies to the personal Swiss bank accounts of ‘very senior’ Kazakh official (United States of America V. James H. Giffen Opinion 8th December 2006).

The “Kazakhgate” case illustrates the scale of international corruption in the age of globalisation. As the scandal of the Panama Papers, showed, corruption has acquired an international dimension often operating within a complex web of transnational networks which further blur the line between illegal and legal activities. These networks include a multitude of actors such as multinational companies, elites from sending countries but also recipients in hosts countries, offshore financial vehicles, middlemen such as James Giffen, and financial institutions.

Speaking at the event, Tom Mayne, an independent expert on corruption and offshore flows showed examples of offshore corruption in Central Asia. Most notably, the bribing scheme between Scandinavian telecom company Teliasonera and Gulnara Karimova. Nordic telecom giant TeliaSonera paid Karimova $381m and promised another $75m to order to operate in  Uzbekistan’s cellphone market. The affair further sparked a corruption probe in Sweden, which was linked to a money-laundering investigation in Switzerland in which Karimova was a formal suspect (The Guardian, 24 March 2015).

Tom also reviewed cases of money-laundering in property schemes in London, referring to Rakhat Aliyev, the former deceased and disgraced son-in -law and a portfolio of real estate worth £147 million in London’s most expensive locations. According to the international anti-corruption organisation Global Witness, there are at least £122bn worth of property in England and Wales owned by companies registered offshore, and 75% of properties whose owners are under investigation for corruption (Global Witness, 2015).

The role of anti-corruption initiatives was also discussed during the event. Speaking about energy corruption, Dr Luca Anceschi of Glasgow University pointed out the role of Extractive Industries Transparency Initiative (EITI), designed to fight corruption in the resource sector. According to Anceschi, the role of anti-corruption norm of transparency in an authoritarian country such as in Kazakhstan is often subverted and is manipulated to serve elite’s interests without improving the situation of corruption in the country. Mainly such initiatives are adopted to improve the image and ‘branding’ of the country for the international audience.

As the fellows from Central Asia noted, corruption has a big impact on inequality in the regions, where the wealth is concentrated in a few hands at the top of society which further accentuates the difference between the bottom and the top. As our discussion showed, corruption in Central Asia is pervasive and operates at all levels of the state system ranging from the petty corruption to the political and business corruption at elites and the government levels.

Reflecting on the dynamics of corruption discussed by our speakers we can observe that corruption is becoming increasingly sophisticated.  At the same time national and international authorities are taking serious measures in terms of combating corruption and illicit flows. The adoption of anti-corruption norms might seem to demonstrate efforts of authoritarian regimes to foster good governance reforms in the country, however a closer look at the initiatives such as the EITI shows that anti-corruption efforts more often serve as a strategic instrument  for consolidating power and managing regime perceptions at home and abroad. In such contexts, efforts to fight corruption might fall short on their promised outcomes.