bta2London's High Court ruled today (12 November) to maintain a freezing order restricting the assets of BTA Bank's ex-chairman, Mukhtar Ablyazov, and other former managers. Court sessions held on the matter last week shed new light on BTA's old ownership structure and the evidence both sides will rely upon in the multi-billion-dollar fraud case that will follow the asset freeze decision.

 

 

Presiding Mr Justice Teare ruled to continue the asset freeze, which was originally granted on 13 August, after considering the defence's arguments during hearings last week. The case is part of BTA Bank's broader attempt to recover billions of dollars that it says were misappropriated under its former management. The bank claims the fraudulent activities took place before BTA's nationalisation in February 2009 by Kazakhstan's sovereign wealth fund, Samruk-Kazyna.

 

Lawyers for Ablyazov and co-defendants strove to characterize the fraud suit as politically motivated, while counsel for BTA Bank cited a pattern of obfuscation, non-disclosure and use of foreign nominees to make their case.

 

Defence lawyer Brian Doctor QC stated during last week's sessions that, "[the] Kazakhstani authorities knew and were prepared to tolerate the fact that he [Ablyazov] effectively controlled BTA and its subsidiaries [in Russia, Ukraine and Belarus]." Kazakhstan's president, Nursultan Nazarbayev, and others acting on his behalf, had repeatedly demanded that the defendant hand over half his shares in the bank to affiliates of the president, Mr Doctor argued in court submissions.

 

Mr Justice Teare said last week he would have had more sympathy for the argument about political pressure if the political environment in Kazakhstan explained missing documents in BTA's compensation agreements. "If the charges are meticulously explained and supported by evidence, it is hard to see how the political situation might have influenced the claim," he remarked. "I can see how this [situation] might explain the use of nominees, but [...] hiding assets in the Marshall Islands may be taking it a bit too far," he said, referring to a list of assets previously disclosed by Ablyazov.

 

Defendant assets cover claims

 

Ablyazov and other defendants disclosed their assets to the court under seal last month following the dismissal of their appeal against a 21 August court order instructing them to do so. The disclosure shows the value of Ablyazov's assets comfortably exceeds the value of BTA's claim, lawyers for both sides said.

 

The UK High Court granted a worldwide freezing injunction on the assets of Mukhtar Ablyazov and six other defendants on 13 August to back BTA's claim for around USD 300m the bank alleges Ablyazov and his affiliates misappropriated in 2008. In an 8 October statement, BTA Bank said it expected that "further claims in relation to former management's fraudulent activity will be issued in due course". BTA claims it suffered USD 6bn in losses under its former management, the court heard.

 

BTA Bank is now headed by Anvar Saidenov, a former governor of Kazakhstan's central bank, and its balance sheet has been crippled by huge loan-loss provisions. The bank is currently negotiating a USD 10.3bn debt restructuring that offers some creditors just a 17.75% upfront recovery. Creditors would also participate in any future recovery of BTA assets through litigation under the proposed restructuring.

 

In August, responding to statements by BTA Bank, Ablyazov categorically denied doing anything illegal or detrimental to the bank's shareholders, depositors or lenders. He said there was a "relentless campaign" by government bodies in Kazakhstan to discredit him through "groundless accusations and intimidation of former colleagues".

 

Other defendants named in the case brought by BTA Bank are Roman Solodchenko, former chairman of BTA's management board, and Zhaksylyk Zharimbetov, formerly first deputy chairman of the bank's management board. The bank also brought claims against a UK-registered company, Drey Associates Ltd, as well as three individuals that acted as nominees of the first three defendants, the judge heard last week.

 

BTA is represented by Lovells, which was hired in June specifically to help recover the Kazakhstani bank's assets. Clyde & Co represents the first group of defendants, comprising Ablyazov, Solodchenko and Zharimbetov, while Magrath LLP is acting on behalf of the remaining four defendants. The defence argued in court that it is normal for Kazakhstani businessmen to use nominee companies when conducting business because there is a risk that assets could be confiscated by the authorities.

 

BTA's claim

 

BTA alleges that Ablyazov, with the assistance of Solodchenko and Zharimbetov, transferred in excess of USD 295m to Drey Associates under compensation agreements related to a purchase of shares in subsidiaries BTA Moscow, BTA Ukraine and BTA Belarus. The claimant's case alleges that Ablyazov, chairman of the BTA board at the time, failed to inform the board of these transactions and concealed the fact he effectively owned Drey.

 

"A related party's transaction without a relevant disclosure to the bank can be declared voidable, and any assets transferred as a result of such transaction may be reclaimed," argued Stephen Smith QC for the claimant, BTA Bank.

 

At the time of the alleged fraud, Ablyazov was a beneficiary of Drey Associates, as well as controlling shareholder in BTA and its subsidiaries via various nominee companies. He acknowledged this in a court statement, claiming this was well known to the bank's board and Kazakhstan's authorities.

 

Mr Doctor said the transactions in question were commercial and part of BTA's business strategy to acquire interests in banks in other CIS countries. The payments were properly accounted for in the bank's accounts prepared by Ernst & Young, he said.

 

But the claimant's lawyers said Kazakhstan's financial regulator and the government were misled as to the ultimate ownership of BTA in Kazakhstan and its subsidiaries in the region. There was no formal disclosure of the true ownership of the bank to the regulator, said Mr Smith last week.

 

Drey Associates was disclosed as a holder of 9.8% of BTA Bank shares to the Kazakhstan Stock Exchange as of 1 October 2007, according to the claimant. Yet the company failed to mention its BTA shareholding to the UK's Companies House and stated its assets were worth only GBP 46,000 in 2007 and GBP 38,000 in 2008, when at that time BTA was worth hundreds of millions of dollars, said Mr Smith.

 

The court heard that in a letter to Dutch bank ING in November 2007, Roman Solodchenko misrepresented Anthony Stroud, one of the seven defendants named in the case, as the real shareholder of Drey Associates.

 

Fear of prosecution

 

BTA Bank argued in court last week that the freezing injunction should stay in place to safeguard against the risk of asset dissipation. This risk was real, it argued, considering the defendants' history of hiding the ownership of valuable assets behind nominees and the fact that the first three defendants – Ablyazov, Solodchenko and Zharimbetov – fled Kazakhstan and are now residing in England.

 

The defence asked Mr Justice Teare to take into consideration the political situation in Kazakhstan. "It is not a democratic system in Kazakhstan, and the rule of law does not apply," Mr Doctor said. President Nazarbayev is reported to have vast interests in the country's economy and there is a danger of one's assets being taken away, Mr Doctor continued.

 

The defence also drew the judge's attention to the fact that Mukhtar Ablyazov was part of the political opposition in the early 2000s when he was one of the founders of the anti-Nazarbayev party Democratic Choice of Kazakhstan. Ablyazov, then the country's energy minister, was imprisoned for six years on embezzlement and misuse-of-office charges in 2002.

 

He was released the following year and invited to become chairman of BTA in 2005. BTA's shares were targeted by Kazakhstan's president and his allies during Ablyazov's stint at the bank, which culminated in BTA's nationalisation by Samruk-Kazyna in February this year, the defence stated.

 

The defence argued the claimant had failed to prove a sufficient risk of asset dissipation, considering the five-month lag from the time the bank claimed it knew the facts. BTA said it learned about the alleged fraud in March but did not bring legal proceedings until August, Mr Doctor noted. This suggests the bank did not consider it an urgent matter and was not terribly concerned about dissipation of assets, he said.

 

Mr Doctor also questioned the reliability of a witness statement by Nikolai Varenko, who was appointed as first deputy chairman of BTA Bank's management board in February and is heading the bank's programme to claw back assets. In 2005, Varenko was a director of a company called Fellowes in the Isle of Man that had acted in violation of UK and British Virgin Islands court orders, the court heard. The defence argued that this fact undermined Varenko's witness statements that form part of BTA's fraud claim. Varenko denies involvement in any violations.

 

Restricted area

 

The High Court today also decided to maintain some restrictions on the disclosure of assets provided by Ablyazov, Solodchenko and Zharimbetov. Mr Doctor said last week that Ablyazov was concerned about providing information to the claimant, because it may end up with and be misused by the authorities. The defence maintained that information should be confined to the claimant's solicitors unless they specifically ask the court for such disclosure to be available to certain individuals.

 

Mr Smith for the claimant had argued against this last week. "The defendant seems to contradict himself by saying he does not want his assets to be diclosed to the authorities for fear of prosecution and yet claiming everyone in Kazakhstan knew about his shareholding in BTA and other affiliated entities," he said.

 

The Financial Times