"MAXIMIZING" BUSINESS IN THE KYRGYZ REPUBLIC

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 001155

SIPDIS

SIPDIS

DEPT FOR SCA/CEN (GEHRENBECK)
TREASURY FOR JEFF BAKER

E.O. 12958: DECL: 09/18/2017
TAGS: EFIN PGOV KCOR ECON EINV PINR KG
SUBJECT: "MAXIMIZING" BUSINESS IN THE KYRGYZ REPUBLIC

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Classified By: Ambassador Marie Yovanovitch for Reasons 1.4 (b) and (d)


1. (C) Summary: A prominent ex-pat businessman, Giorgio
Fiacconi, has reportedly been forced to sell his Kyrgyz
Credit Bank (KCB) to a close business associate of Kyrgyz
President Kurmanbek Bakiyev's son, Maxim. The associate,
Latvian businessman Valery Belokon, has also acquired the
failed "Insan" bank, which he has rebranded "Manas" bank,
and, according to Belokon, will attract $200 million in
assets during its first year of operations. Belokon's
increased Kyrgyz banking profile follows the reported
crackdown by Russian authorities on a Russian bank implicated
in the funneling of significant sums among Latvian, Kyrgyz
and other financial institutions. Given his ties, through
Maxim Bakiyev, to the Kyrgyz leadership, and given the
political weakness of the Kyrgyz Central Bank, Belokon's
Kyrgyz activities merit special scrutiny. End Summary.

Giorgio Fiacconi's Kyrgyz Portfolio
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2. (SBU) Giorgio Fiacconi, a 63-year-old Italian citizen,
has nurtured a significant business portfolio in Kyrgyzstan
over the past 13 years. At the beginning of 2007, Fiacconi
held a significant stake in a large shopping complex (Tsum),
owned the Kyrgyz Credit Bank, controlled an English-language
newspaper (Times of Central Asia),was proprietor of an
Italian restaurant, and likely held other interests arising
from his earlier work renovating what is now the Bishkek
Hyatt. Given his extensive holdings, Fiacconi has long
attracted (often unwanted) attention from Kyrgyz authorities.
After the 2005 "revolution," Fiacconi was jailed, but
eventually released following judicial actions and
international pressure.

Acting without Consultations
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3. (C) Earlier this year, Fiacconi quietly sold his stake in
Tsum to Kazakh investors. Once the sale became public

SIPDIS
knowledge in August, Fiacconi suddenly faced tax evasion
charges. In a subsequent court hearing, he suffered an
angina attack and was admitted to hospital. While in the
hospital, Fiacconi advised emboff that he was in "trouble"
for "insulting senior people" by selling his Tsum shares
"without consultations." Without uttering the name of his
principal adversary, he confirmed that it was "M.B., Jr."
(Note: "M.B., Jr." likely corresponds to President Bakiyev's
younger son, Maxim. End note.) Fiacconi added that the tax
evasion charges arose from a loan which he received from an
Italian bank to finance his business activities. Kyrgyz
officials, he noted, now consider the loan a "gift" subject
to taxation. Fiacconi added, however, that three Kyrgyz
experts called by the government to validate this
interpretation disagreed and supported Fiacconi's position.

Fallout
--------------


4. (C) According to Fiacconi, an intermediary informed him
that he could "compensate for his mistake" by doing three
things: 1) paying a fine for tax evasion, 2) providing
financial support to a sport club, and 3) selling his bank.
Fiacconi faced an August 24 deadline to acquiesce, or, as he
reported to emboff, he would suffer a damaging media
broadside, the possible arrest of himself and his employees
and the prospect of "physical retribution." Fiacconi said
his opponents were "prepared," and he did not plan to mount a
defensive media campaign, as he had done in the past.


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Belokon Builds a Banking Network
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5. (C) On August 28, Kyrgyz media reported that Valery
Belokon, Maxim Bakiyev's Latvian business partner, wanted to
open a commercial bank in Kyrgyzstan. (Note: The reports
also added that Belokon hoped to open a Kyrgyz "banking
school" and expand into mining. End note.) Fiacconi, after
his release from the hospital, confirmed to emboff August 28
that he had sold his bank. When asked for details regarding
the buyer, Fiacconi advised emboff to read a news summary
which only contained information about Belokon's interest in
a Kyrgyz bank. There has been no public reporting on the
sale of Fiacconi's Kyrgyz Credit Bank.


6. (C) Despite Fiacconi's account, Kyrgyz media have instead
focused on Belokon's recent purchase of the failed "Insan"
bank, which will be renamed the "Manas" bank. (Note:
Belokon's action to acquire Kyrgyz banks roughly coincides
with a reported crackdown, by Russian authorities, on the
Iberus Russian bank, which has been implicated in the alleged
funneling of money between financial institutions in Latvia,
Kyrgyzstan and a few other countries. End note.) Belokon
announced September 14 that "Manas" bank will have charter
capital of 300-500 million soms (roughly $8-13 million) and
will have assets of $200 million in the first year of
operation. He also revealed that he has spent 100 million
euros ($138 million) to equip the bank. (Note: A Kyrgyz
Central Bank advisor expressed astonishment to emboff
September 13 at the large amount expended on the new bank's
equipment. End note.) The Latvian prime minister attended
the Bishkek ceremony announcing the launch of Belokon's
Kyrgyz bank.

Going for the Gold
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7. (SBU) On August 29, Kyrgyz media reported that Maxim
Bakiyev had been elected president of the Kyrgyz Wrestling
Federation (KWF) at an August 28 "emergency meeting" that
followed the "voluntary" resignation of the previous KWF
president. (Note: Bakiyev's election to this post enables
him to be considered as chairman of the Kyrgyz Olympic
Committee. End note.)

Business Community Reaction
--------------


8. (C) International Business Council Chairman (and Kumtor
Operating Company president) Andy Lewis told emboff August 31
that little could be done about the Fiacconi case other than
ensuring that the international business community was aware
of what happened. Lewis commented that "Maxim Bakiyev has
accomplished more in the past three months than his
predecessor did in years." (Note: By predecessor, he means
former President Akayev's son Aidar, who took advantage of
his father's position in business dealings, one of the
reasons for the 2005 "revolution." End note.) Fiacconi's
situation follows complaints by a U.S. telecommunications
firm of interference by Maxim Bakiyev in GSM-compatible
bandwidth licensing.

Comment
--------------


9. (C) The raid on Fiacconi's assets is a worrying
development. While Maxim Bakiyev, in an interview earlier
this year, denied allegations that he controlled any
businesses in Kyrgyzstan, he admitted that he works for a
Latvian capital management company and identified Belokon as

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a close business partner. Although Fiacconi and other
Embassy interlocutors have not explicitly linked Belokon and
Maxim Bakiyev jointly to recent developments, their interests
would be served by these events. If Belokon's interests have
been affected by recent Russian Central Bank activities, then
the uptick in Maxim Bakiyev's and Belokon's activities in
Kyrgyzstan makes sense. With Maxim Bakiyev's father holding
the presidency, the politically weak Kyrgyz Central Bank may
have difficulty exercising oversight of Belokon's banking
interests. Post will continue to monitor developments.


10. (C) We also note that Belokon has attempted previously
to arrange meetings, on Maxim Bakiyev's behalf, in Washington.

YOVANOVITCH