The erstwhile flagship of Kazakhstan's banking sector, BTA Bank, is wrapping up a turbulent year: embattled by the credit crunch, dogged by allegations of massive fraud, nationalized under duress and forced to default on its debts. The bank is now at the center of an acrimonious legal battle in London while simultaneously negotiating with creditors to restructure debts.



The convoluted story of BTA is a vivid illustration of the explosive mix of politics and economics in Kazakhstan. On one side of the dispute stands the government that now owns BTA, and the new managers who have been installed to run it. On the other side is BTA's former chairman, Mukhtar Ablyazov, a successful entrepreneur who is both a former government official and a former opposition leader. He is now accused of running a criminal enterprise at BTA and -- in collusion with two other former top BTA managers, Roman Solodchenko and Zhaksylyk Zharimbetov -- defrauding it of some $550 million. All three men deny the charges against them.


BTA is suing them in London to seek the return of part of that sum, $295 million it alleges the trio defrauded the bank of "through a series of questionable agreements entered into last year in favor of a company [Drey Associates Ltd.] in which these former managers secretly held an interest." The case is now pending in the High Court in London, where Ablyazov, Solodchenko and Zharimbetov are living after having fled Kazakhstan. [For background see the Eurasia Insight archive].


During an interview with EurasiaNet in the plush surroundings of the City of London's landmark Tower 42 skyscraper, Ablyazov rejected the accusations out of hand, insisting he had no reason to steal from a bank he owned, although his stake was not officially declared. He called the case against him politically motivated. "The question arises as to why I set up the bank and made it a leading one in order to tritely steal some sum," he said. "I did not come to run the bank for that. The underlying cause [of the legal case] is very simple -- it is political."


Ablyazov has a checkered history with President Nursultan Nazarbayev's administration. A former minister of energy, industry and trade, in 2001 he became a founding member of Democratic Choice of Kazakhstan. The movement was set up by a group of officials and businessmen who aimed to push for gradual reform, but it soon became demonized by the administration as an opposition movement. Ablyazov and another founding member, Galymzhan Zhakiyanov, were subsequently imprisoned on corruption charges which they denied and condemned as politically motivated. Ablyazov was pardoned and freed after serving under a year of his six-year sentence, after which he pursued business interests from Moscow until returning to Kazakhstan to run BTA in 2005. [For background see the Eurasia Insight archive].


Ablyazov bought BTA from the government back in 1998, but he says that for political reasons he concealed his stake behind intermediaries after his imprisonment. He insists the arrangement was common knowledge in Kazakhstan, but his legal team is now faced with explaining this type of opaque business practice to the High Court, which has frozen the assets of the three Kazakhstani defendants, as well as those belonging to three British individuals and Drey Associates Ltd.


BTA is now working to recover assets in Kazakhstan and abroad, Anvar Saydenov, the bank's current chairman, told EurasiaNet in an interview at the bank's Almaty headquarters. He acknowledges the recovery process will be complex and time-consuming, likely to stretch at least a few years. "Actually, consultants put the recovery rate at 20 percent of these foreign assets," Saydenov said. "It's difficult to say right now whether it's an optimistic or pessimistic assessment, because we're facing not only general macroeconomic problems which make our borrowers not service debt properly, but also we are again facing the problem of lack of documentation, documents not being registered properly, the collateral not being duly formalized ... "


BTA was previously Kazakhstan's largest bank in terms of assets, but during the first three quarters of 2009 its assets shrank by almost a third to 2.1 trillion tenge ($14.3 billion), and the bank posted a loss of 2 trillion tenge ($13.5 billion). Saydenov is sanguine about its financial position, putting the loss down to BTA provisioning its loan portfolio at the level of 77.5 percent. He says the bank is streamlining operations and is confident a deal with creditors to restructure $10 billion in debts is close: "I expect that both parties will be realistic and responsible and will reach the final decision by the deadline set by the [Kazakh financial] regulator, which is December 7."


As restructuring talks near a conclusion and legal wrangling drags on in London, Ablyazov continues to be a thorn in the administration's side. He contends that Nazarbayev personally sought to acquire a 50 percent stake in BTA, supposedly out of a desire to thwart any chances that Ablyazov might make a political comeback. The onset of the global financial crisis in late 2008 became a pretext to seize the bank, Ablyazov adds. "When the political system is totally controlled off course, classically, that political system should also dictate control over the economy," he says.


The presidential administration declined to comment on Ablyazov's allegations. Meanwhile, officials in various government agencies denied any political motivation for the BTA takeover, or the fraud investigation. "This whole process has a transparent basis -- that is, there is no political bias," Kayrat Kelimbetov, chairman of the Samruk-Kazyna state assets fund which now owns a 75 percent stake in BTA, said on November 2. He added that BTA had to be nationalized to prevent its collapse.


The investigation into alleged fraud at BTA has been going on for nine months in Kazakhstan and is expected to lead to a trial, with Ablyazov, Solodchenko and Zharimbetov potentially facing charges in absentia.


Ablyazov, however, has little faith in the rule of law in Kazakhstan, which he describes as "a country where there is no law, where the power is one person, where any day everything can be taken away, someone can be put in prison, can be killed."


Ablyazov has proven to be a survivor in Kazakhstan's rough-and-tumble economic and political world. And there is a possibility that he may find a way out of his current predicament. In November 13 comments broadcast on Kazakhstani television, Nazarbayev stated; "I am not a vengeful person. I am ready to forgive those who repent their mistakes." The president also emphasized that he had the right to issue a pardon to people already convicted of crimes.


Editor's Note: Joanna Lillis is a freelance writer who specializes in Central Asia.