This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ALMATY 000256 
 
SIPDIS 
 
DEPT FOR EUR/CACEN (J. MUDGE), EUR/PRA (J. CONLON), EB/IFD 
(K. TUMINARO) 
TREASURY FOR CENTRAL ASIA DESK OFFICER M. GAERTNER 
 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: EINV PGOV PREL PINR KZ ECONOMIC
SUBJECT: KAZAKHSTAN: COURT REFUSES TO ENFORCE BYELKAMIT 
ARBITRATION AWARD 
 
REF: 05 Almaty 3173 and previous 
 
¶1. (SBU) Summary:  A Kazakhstani court has refused to 
enforce the London Court of International Arbitration's 
award of legal fees to U.S. firm Byelocorp Scientific Inc. 
(BSI).  BSI will contest the ruling, which asserted that 
enforcement of the LCIA award would be "detrimental to 
public order in Kazakhstan."  In the meantime, the 
politically influential Kazakhstanis behind the original 
effort to expropriate BSI's 65% stake in Byelkamit have 
stripped the defendant companies of all assets and are 
threatening additional legal action against BSI.  The final 
decision in the case will have a significant impact on the 
Kazakhstani investment climate, particularly for small and 
medium sized investors likely to rely on arbitration.  End 
summary. 
 
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LCIA Finds in Favor of BSI 
-------------------------- 
 
¶2. (U) On November 22, 2005, the London Court of 
International Arbitration (LCIA) ruled in favor of Byelocorp 
Scientific Inc. (BSI) in its dispute with Kazakhstani firms 
that had tried to expropriate its shares in Byelkamit 
(reftel).  LCIA awarded BSI 194,365.89 in legal fees.  BSI 
then turned to the Kazakhstani courts to enforce the 
decision against defendants Kulan Group, Giprosvyaz, and 
Web.KZ. 
 
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Kazakhstani Defendants Play Dirty... 
------------------------------------ 
 
¶3. (SBU) On December 20, the Astana Economic Court issued a 
ruling freezing the assets of the defendants pending a 
decision on enforcement.  According to BSI lawyer Yerlanbek 
Zhussupov, however, the three defendant firms were stripped 
of assets before the court order took effect.  On November 
7, all the shares of Web.KZ and Kulan Group were sold to 
Giprosvyaz.  On December 13, all shares and property of 
Giprosvyaz were transferred to a firm called Gidromash Group 
LLP. 
 
¶4. (SBU) Zhussupov shared with POEC chief a copy of a 
December 31 letter from Kazakh Institute of Oil and Gas 
president Serik Burkitbayev's assistant Yermek Ashkenov to 
BSI president Lowell Mintz.  In the letter, Ashkenov demands 
that BSI pay damages and transfer its remaining two percent 
stake in Byelkamit.  Ashkenov threatened further legal 
action in Kazakhstan and London in the event agreement is 
not reached.  In what appeared to be an open threat to use 
political leverage, Ashkenov wrote "as the election campaign 
is over and the political situation is stable, there is a 
good chance that legal action will result in the complete 
satisfaction of HOZU Engineering's demands..." 
 
¶5. (SBU) Ashkenov also alleged that Byelkamit possessed 
documents related to the manufacture of equipment for the 
"strategic chemical complex in Iraq" by BSI subsidiary 
Supcodue S.R.L.  Zhussupov told POEC chief that the claims 
regarding Iraq were completely spurious and could not be 
used against BSI.  According to Zhussupov, an Italian 
company owned by the same person who owns Supcodue 
participated in the Oil-for-Food program.  The participation 
was completely above board, he stressed, and unrelated to 
BSI or its activities in Kazakhstan. 
 
 
------------------------------------- 
...and Court Refuses to Enforce Award 
------------------------------------- 
 
¶6. (U) On January 23, the Astana Economic Court announced 
its decision not to enforce the LCIA ruling.  The court 
pointed to the fact that LCIA did not specify how the 
defendants should divide up the legal costs among 
themselves.  As a result, the judge reasoned, enforcement of 
the order would be "detrimental to public order in 
Kazakhstan."  He cited Article 228, para. 2 of the Civil 
Code, as well as Article 33 of the law "On International 
Commercial Arbitration," as justification of his decision. 
 
¶7. (SBU) Zhussupov characterized the ruling as "far-fetched" 
and surmised that pressure had been successfully applied to 
the court.  BSI will appeal the ruling, according to 
Zhussupov, and has the option of applying to either the 
Almaty or Astana city court. 
 
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Comment 
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¶8. (SBU) Comment: As BSI successfully defended its interests 
in this case and obtained $5 million for its shares in 
Byelkamit, the question of whether it ultimately receives 
roughly $346,000 in legal fees is somewhat secondary.  The 
case is an important precedent for other potential foreign 
investors, however.  To date, Kazakhstan has dragged its 
heels on enforcement of one arbitration ruling (AIG) and 
refused to enforce a second (BSI).  A final decision to 
reject implementation of an international arbitration award, 
particularly on such laughable grounds, would undermine 
Kazakhstan's ability to attract foreign investors. 
 
ASQUINO