KAZAKHSTAN: THE ABLYAZOV FACTOR

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 001762

SIPDIS

STATE FOR SCA/CEN

E.O. 12958: DECL: 10/02/2019
TAGS: PGOV PREL ECON EFIN KCOR OSCE UK KZ
SUBJECT: KAZAKHSTAN: THE ABLYAZOV FACTOR

REF: A. ASTANA 1626

B. ASTANA 0386

Classified By: Ambassador Richard E. Hoagland: 1/4 (B),(D)


1. (C) SUMMARY: Former CEO of Bank Turan Alem (BTA) Mukhtar
Ablyazov is accused of having embezzled at least $1.1 billion
from BTA before fleeing to London on February 3. Ablyazov
reportedly plans an international public relations campaignm
with two goals: 1) to rebrand himself as the persecuted
leader of Kazakhstan's democratic forces, and 2) to attempt
to harm Kazakhstan's image in the final months before it
assumes the 2010 OSCE chairmanship. Because of the
government's recent missteps on, for example, the Internet
law and the Zhovtis case, an Ablyazov smear campaign would
likely find an audience in the West. END SUMMARY.

ABLYAZOV'S BAD BETS, BTA'S BAD DEBTS


2. (C) When the Ambassador asked Chairman of the National
Bank Grigoriy Marchenko on September 28 what role former CEO
Mukhtar Ablyazov played in the downfall of the formerly
powerful BTA bank, the ever-sardonic Marchenko replied, "Take
Ablyazov to Guantanamo, and in three weeks we'll know all."
Marchenko said BTA was 64% dependent on foreign borrowing
when the U.S. subprime mortgage crisis began to hit. Already
in March 2007, Marchenko said he had advised Ablyazov to sell
BTA's real-estate assets and "get out while the getting is
good." Ablyazov refused, claiming the real-estate bubble was
likely to continue for another three years. A year later, in
March 2008, other major Kazakhstani banks, like
KazKommerceBank and Alliance, which had also heavily invested
in real estate, especially in Russia, began to sell or to
refinance their assets in Russia. Ablyazov, however,
refused. He admitted to Marchenko that the National Bank
Chairman had been right a year earlier, at least about the
plunging value of real estate in Kazakhstan, but he
reportedly insisted Russia was still a solid investment.


3. (C) In October 2008, Marchenko said, he ordered the
Financial Security Agency to inspect BTA, and Ablyazov
supposedly revealed the true beneficiaries of BTA's holdings.
However, as the financial crisis snowballed globally,
according to Marchenko, Ablyazov changed course and began
shifting BTA assets (including at least $700 million owed to
Western European investment banks) "off-shore," without
informing the auditors, to entities he himself owned or
controlled. According to Marchenko, this is the origin of
the allegation that Ablyazov embezzled at least $1.1. billion.


4. (C) Ablyazov fled to London on February 3. (NOTE: In
fact, he might have been allowed to depart Kazakhstan with
sensitive documents. The truth is unclear. END
NOTE.)Marchenko said Ablyazov is seeking UK residency, and
there are rumors he might seek political asylum in the United
States. Marchenko noted, and British Ambassador Paul
Brummell subsequently confirmed, that a UK court has
confiscated Ablyazov's passport to keep him from fleeing the
country and has frozen $350 million of Ablyazov's personal
funds in UK banks. The UK ambassador thinks there might be
several hundred million more to be found in the UK alone.

ABLYAZOV AND NAZARBAYEV


5. (C) Meeting with the Ambassador on September 21, former
presidential candidate and Chairman of the National Social
Democratic Party Zhermakhan Tuyakbay (who is close to several
current presidential advisers) added to the Ablyazov saga
from a different angle. When Ablyazov was released from
prison in May 2003 and rehabilitated to good-standing within
the small circle of government super-elite, former
presidential adviser and Nazarbayev confidante Bolat

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Utemuratov played the intermediary between Nazarbayev and
Ablyazov. (NOTE: Utemuratov has long been rumored to be
Nazarbayev's "personal financial manager." END NOTE.)
Ablyazov had been imprisoned for "abuse of office" during his
tenure as Energy Minister, although it was commonly assumed
the real reason was his role in financing the leading
opposition party at that time, Democratic Choice of
Kazakhstan.


6. (C) Because of Ablyazov's considerable wealth and
standing among the elite, he was given the chairmanship of
BTA on the condition that he stay out of politics and,
Tuyakbay alleged, transfer 60% of BTA's shares to Nazarbayev.
Tuyakbay claimed this transfer condition has never been made
public but has always been well-known among the elite. In
Tuyakbay's version, Ablyazov "dragged out and dragged out"
the transfer of shares to Nazarbayev, while at the same time
accepting "huge international loans," which Ablyazov and his
BTA cronies used "inappropriately" for real-estate wheeling
and dealing, mostly in Russia, and hid from Kazakhstani
government and international auditors. The true
beneficiaries of the collatoral assets, according to
Tuyakbay, were shell companies, mostly in the Russian
Federation, but also elsewhere abroad, owned by Ablyazov
himself and his Russian collaborators.

THE THREAT OF "KOMPROMAT"


7. (C) Naturally, Ablyazov himself is telling a different
story. A Central Asian Visiting Senior Fellow at the London
School of Economics and Political Science recently told
PolOff that she met Ablyazov in London at a Chatham House
seminar during the week of September 21. One week before BTA
was announced as insolvent, Ablyazov claimed, Nazarbayev
called him in and demanded he "sign over" a significant
portion of his personal assets so that Nazarbayev could have
"personal leverage" over him. Ablyazov claimed he refused
and bragged to the Visiting Senior Fellow that he has a large
amount of "kompromat" on the Kazakhstani leadership that he
expects to begin to release in October. Also, he told the
Visiting Senior Fellow, sometime in October he will decide
whether or not to "join the opposition."

BIRDS OF A FEATHER


8. (C) We have been hearing that Ablyazov has linked up with
former Prime Minister Akezhan Kazhegeldin, long exiled in
London, and that they plan to finance a public relations
campaign 1) to rebrand Ablyazov as the persecuted leader of
Kazakhstan's democratic forces, and 2) to attempt to harm
Nazarbayev's image in the final months before Kazakhstan
assumes the 2010 OSCE chairmanship. Earlier in this decade,
Kazhegeldin, already in exile, attempted to position himself
internationally as a leader and spokesman for pro-democracy
forces in Kazakhstan, and gained some traction in Washington,
especially in the State Department's Bureau of Democracy,
Human Rights, and Labor; with U.S. democracy NGOs; and on
Capitol Hill. Like Ablyazov, Kazhegeldin is immensely
wealthy from ill-gotten gains. Together, they easily have
the resources to pay for an extensive international public
relations campaign.


9. (C) Prominent independent journalist Sergey Duvanov told
the Ambassador on September 28 that Ablyazov is not a serious
opposition leader, but he is important because he has the
ability to leak the secrets of the elite. When asked
directly if Ablyazov is a criminal, Duvanov replied, "Sure.
Kazhegeldin is, too. They all are. But that's the system
Nazarbayev created. From time to time it bites him." (NOTE:
Duvanov is reportedly negotiating with Ablyazov's team to
become the lead analytical anchor on Ablyazov's satellite TV
channel, K-Plus TV. END NOTE.)

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10. (C) Tuyakbay judges that such a smear campaign would be
more effective in Western capitals, where some have a
tendency to believe the worst about Kazakhstan, than in
Kazakhstan itself. He said Ablyazov's goal inside Kazakhstan
would be to futher destabilize and factionalize the elite,
although there would likely be little effect on the larger
population, which generally ignores or is jaundiced about the
elite's high-stakes political games.

ABLYAZOV'S MEDIA OUTLETS


11. (C) Ablyazov reportedly owns, finances, or otherwise
controls the following media outlets in Kazakhstan: three
newspapers sometimes identified as "opposition":
"Respublika," "Vzglyad," and "Azat," the Azat party organ;
the satellite television station, K-Plus TV; and the Internet
streaming video site, Stan-TV. According to Tuyakbay, these
outlets have the potential to reach no more than 20% of the
population, all of whom tend to be well-educated, liberal,
Russian speakers who are used to the games of the elite and
know how to read between the lines and enjoy the ironies they
know well how to perceive.

A NUISANCE BUT NOT YET AN ENEMY


12. (C) The Foreign Ministry's Chairman of the International
Information Committee (IIC),Roman Vassilenko, told the
Ambassador on October 1 the government has not yet tasked his
25-person IIC public-diplomacy operation specifically to
counter whatever Ablyazov is doing in the West. At the
moment, they are monitoring the situation, he said.
"Ablyazov is a nusiance, but he's not yet considered an
enemy. We don't want to raise his profile unnecessarily."
The government is apparently more interested at the moment in
Ablyazov as an international fugitive. Besides having his
assets frozen in the UK, the government has urgently
submitted the text of an extradition treaty to Whitehall.
Ambassador Brummell said HMG likely "will not act on this
especially quickly."


13. (C) COMMENT: Ablyazov would not have to work too hard
to harm Kazakhstan's image. Because of the government's
recent missteps on, for example, the Internet law and the
Zhovtis case, an Ablyazov international public relations
campaign would likely find an audience in the West. END
COMMENT.
HOAGLAND