VZCZCXRO7938
PP RUEHIK
DE RUEHTA #2264/01 3640902
ZNR UUUUU ZZH
P 300902Z DEC 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7131
INFO RUCNCIS/CIS COLLECTIVE 2308
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1670
RUEHKO/AMEMBASSY TOKYO 2373
RUEHUL/AMEMBASSY SEOUL 1299
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1865
RUEKJCS/SECDEF WASHDC 1715
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/AMCONSUL ALMATY 2141
RUEAWJL/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEANQT/FINCEN VIENNA VA
RHMCSUU/FBI WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC 0062

UNCLAS SECTION 01 OF 04 ASTANA 002264 
 
SENSITIVE 
SIPDIS 
 
STATE FOR INL/AAE, INL/C, SCA/CEN, EUR/RUS, EEB 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN KCRM KZ
SUBJECT:  KAZAKHSTAN:  BAD SUMMER FOR BANKING BECOMES A WINTER OF 
DISCONTENT 
 
REF:  A.  ASTANA 1915 
      ¶B.  ASTANA 2197 
      ¶C.  ASTANA 1762 
  ¶D.  ASTANA 2258 
 
ASTANA 00002264  001.3 OF 004 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public internet. 
 
¶2. (SBU) SUMMARY:  A dreary summer has become a cold, dark winter 
for the banking system in Kazakhstan as investigations into three 
banks have led to criminal charges and convictions for embezzlement, 
fraud, and money laundering.  The Financial Police (FinPol) have 
opened embezzlement and illegal use of funds investigations against 
former managers of Alliance bank.  On December 25, a court in Almaty 
found 12 former officials from BTA Bank, Temir Bank, and affiliated 
companies guilty of fraud, embezzlement, and concealing evidence, 
but not guilty of money laundering.  In August, former co-chairman 
of the Valyut-Transit Bank was found guilty of illegal 
entrepreneurship and money laundering.  As a result, the Financial 
Supervision Agency (FSA) announced the introduction of a new 
requirement for transactions conducted with offshore companies.  As 
in the anti-corruption campaign (ref A), questions remain about 
whether the sudden increase in cases against commercial banks 
resulted from the economic crisis or whether the banks are being 
used as surrogates for political battles.  END SUMMARY. 
 
ALLIANCE BANK 
 
¶3.  (U) The summer banking scandals began on July 3 when the Agency 
for Regulation and Supervision of Financial Markets and Financial 
Organizations (FSA) removed Zhomart Yertayev, Chairman of the 
Managing Board of Eurasian Bank, and his deputy, Alexei Ageyev.  FSA 
based its actions on allegations that Yertayev and Ageyev violated 
banking laws during their 2005-2007 tenures at Alliance Bank.  The 
City Court of Almaty suspended the decision of the FSA regarding 
Yertayev.  One day later the court reversed itself on the grounds 
that it lacked jurisdiction over the issue, because such a case can 
only be heard by the court in Astana due to the Presidential 
Administration's oversight of the FSA.  Grigoriy Marchenko, the head 
of the National Bank, subsequently announced that all materials 
concerning the case had been submitted to law-enforcement agencies 
for further investigation. 
 
¶4.  (U)  In mid-July, the Financial Police (FinPol), following an 
investigation conducted by the Prosecutor General's Office (PGO), 
began initiating a series of cases against bank officials for 
embezzlement and illegal use of bank funds.  Allegedly, five loans 
totaling $143 million were made without collateral, and $1.1 billion 
was withdrawn through four offshore companies.  U.S. Treasury bonds 
were legally purchased 2005-2007 through two Russian investment 
banks -- Metropol and Renaissance.  The bonds were then used as 
collateral for Alliance Bank loans to four offshore companies 
(Acquinta, Bazora, Xilliana and Serbina) through investment banks. 
When these offshore companies defaulted on their loans, the 
investment banks seized the bonds. According to the National Bank 
and FSA, no one, not even the auditors or board of directors, knew 
about financial transactions involving the bonds, and no 
documentation was found at Alliance Bank.  FinPol arrested Yertayev 
on August 25 for embezzlement and offered Ageyev immunity in 
exchange for his testimony.  On September 10, FinPol arrested 
Abylkasym Mamyrbekov, a former deputy chairman of the Board of 
Directors, for his alleged part in the embezzlement.  In late 
October, Berik Sultankulov and Dauren Keribayev, former Chairmen of 
the Executive Board, and Anuar Beisebayev, the former Chairman of 
the Executive Board of Seimar Alliance Financial Corporation which 
owns 75% of Alliance Bank, were charged in abstentia for 
embezzlement.  All three are subject of Interpol warrants.  Assets 
in the amount of $4 million have been seized. 
 
¶5.  (U) The current Chairman of the Board of Directors and former 
 
ASTANA 00002264  002.3 OF 004 
 
 
primary shareholder of Alliance bank, Margulan Seisembayev, has 
stated his ignorance of the transactions and lack of suspicious 
signals.  Because of the bad loans, Seisembayev sold a 76% stake in 
the bank to the government for 100 tenge (less than a dollar). 
According to Seisembayev, Yertayev and Avgeyev negotiated the terms 
of funding directly with the Moscow banks, and he only learned about 
the financing scheme in 2008.  Yertayev has cast doubt about 
Seisembayev's ignorance of the transactions.  Seisembayev asserted 
that he personally notified the FSA, National Holding Company 
Samruk-Kazyna, and current bank management about the loans. 
However, the bank's current management claims no knowledge of the 
loans before March 2009, and FSA Chairwoman Elena Bakhmutova denies 
receipt of full information from Seisembyaev.  Yertayev has 
questioned the release of information during Alliance's 
restructuring, and not in 2008, when allegedly known by regulators 
and the bank's management.  While arguing his ignorance, Seisembayev 
confessed to a different violation -- the disbursement of borrowed 
funds to increase the bank's equity.  Following Yertayev's arrest, 
Seisembayev announced on August 27 his willingness to cooperate with 
the investigation. 
 
¶6.  (U) Despite Seisembayev's willingness to cooperate, he has also 
not returned to Kazakhstan from his August vacation.  In October, 
FinPol initiated an additional case against Seisembayev for the 
alleged embezzlement of $155 million.  The newest investigation also 
includes Seisembayev's brother Yerlan, who was a stock-holder, and 
Arsen Saparov, the Chairman of the Credit Committee.  Allegedly, the 
Seisembayev brothers used land as collateral for loans through 
affiliated companies.  After the bank reported payment of the loans, 
it cleared the land title for sale.  FinPol claims the report was 
fraudulent, but Saisembayev's attorney asserts the loans were 
transferred to other companies.  Seisembayev's lawyer, who had 
previously complained about access to case materials, recently was 
allowed to review the materials.  She believes that FinPol cannot 
prove the embezzlement charges. 
 
¶7.  (U) In September, FinPol and FSA opened a joint audit to trace 
all loans from issuance to recipient, specifically checking for 
recipients affiliated with bank management.  They sought to confirm 
allegations that the owners of Alliance bank abused their authority 
by taking loans via affiliated companies.  As a result, FinPol 
initiated a case against Askar Galin, another brother of 
Seisembayev, who received loans in the amounts of $1 million and 
653,000 euros.  Galin is also subject of an Interpol warrant. 
 
¶8.  (U) Arlan Rimpoche, a journalist at the geokz.tv website, 
alleged that Alliance Bank used more than 50 unsecured loans in the 
amount of $35 million to bribe senior government officials since 
¶2002.  Alleged recipients include Sarybai Kalmurzayev, former head 
of the FinPol and now a senior official in the Presidential 
Administration, and Kairat Mami, former Supreme Court Chief Justice 
and current Procurator General Minster of Justice.  Seisembayev has 
denied these allegations, claiming that the story is designed to 
ruin his relationship with the Presidential Administration or impede 
the bank's restructuring. 
 
BTA BANK 
 
¶9.  (U) Mukhtar Alblyzov, ex-chairman of the BTA bank Board of 
Directors, and Zhaksylyk Zharimbetov, ex-deputy chairman of the 
Managing Board, allegedly laundered over 83 billion tenge ($550 
million) through nine shell companies.  An interagency investigative 
group transferred the criminal case against BTA Bank and its 
subsidiary, Temir Bank, to the PGO in Almaty to file charges on 
August 3.  The criminal case alleges Alblyzov and Zharimbetov led an 
organized criminal group, which embezzled BTA and Temir Bank funds. 
 
 
¶10.  (U) The investigation led to indictments of 12 people, 
 
ASTANA 00002264  003.3 OF 004 
 
 
including Deputy Chairman of BTA Genrig Kholodzinskiy, Managing 
Director of BTA Bagdatkali Tassibekov, Chairman of the Board of 
Directors of Temir Bank Ablakhat Kebirov, a Deputy Director at BTA, 
two members of Temir Bank's Board of Directors, and six executives 
of other companies.  The investigation resulted in the seizure of 
bank accounts and property, including 136 pieces of land, 12 houses, 
924 apartments, 83 luxury cars, and three planes.  The PGO has 
petitioned for the return of 172 billion tenge ($1.1 billion) from 
foreign borrowers. 
 
¶11.  (SBU) The investigation continues into the activities of 
Ablyzov, Zharimbetov, and the former Chairman of the Managing Board 
of BTA bank Roman Solodchenko, who are believed to have fled 
Kazakhstan.  One of Ablyazov's alleged accomplices, former Director 
General of Betpak-Dala LLP Rifat Rizoyev, was arrested in April in 
Ukraine, but appealed the extradition request to the European Court 
of Human Rights in Strasburg.  On September 26, he unexpectedly and 
voluntarily returned to Kazakhstan.  Rizoyev allegedly helped 
Ablyazov launder money through various offshore companies.  Some 
believe he only returned because of threats to his family in 
Kazakhstan from either Ablyazov or law enforcement authorities.  His 
attorney denies these allegations.  Law-enforcement agencies may be 
particularly interested in Rizoyev due to his alleged involvement in 
both the BTA and Kazatomprom (ref B) cases, although his Ukrainian 
lawyer denies these allegations.  Rizoyev was not charged in the BTA 
case, but offered immunity in exchange for his testimony (see para 
12).  Another accomplice, former head of the corporate-business 
division Veronika Efimova, was arrested in Russia, but her 
extradition has been suspended awaiting a decision on her appeal to 
the European Court of Human Rights. 
 
¶12.  (U) The PGO launched an additional investigation into BTA 
bank's international activities, including loans made in Georgia and 
Ukraine, and announced that Russia and Ukraine also are 
investigating possible fraudulent activities committed by Ablyazov. 
On September 30, Russian law-enforcement authorities arrested 
co-owner and former Director General of the joint-stock company 
Lizingovaya Companiya Delo Dmitriy Pak for fraudulent activity and 
the embezzlement of more than $70 million from BTA bank.  In 
November, BTA's current management seized a 20% share in an aquarium 
being built in Moscow. 
 
¶13.  (SBU) On August 13, a British Court froze the assets of 
Ablyazov, Zharimbetov, and Solodchenko, as well as the assets of 
three British citizens and a company, in response to a lawsuit for 
$300 million filed by the current management of BTA.  Ablyazov 
announced his happiness that England took action against him because 
it allows him the opportunity to fight Kazakhstan in a British Court 
and "air Kazakhstan's dirty laundry."  Nonetheless, he appealed the 
decision.  On September 30, his appeal was denied, and the former 
senior management of BTA was required to disclose their assets 
worldwide.  On November 16, the KNB reported the return of $1 
billion in BTA assets. 
 
TRIAL 
 
¶14.  (U) On December 25, the Almalin District Court in Almaty city 
found the first 12 defendants guilty, as members of a criminal 
group, of fraud, embezzlement, and concealing evidence.  However, 
prosecutors were unable to prove the charges of money laundering. 
Six of the defendants were officials of BTA and Temir bank, and six 
headed affiliated companies.  Managing Director of BTA Bagdatkali 
Tassibekov, Deputy Director of the Bad Loans Department Yermek 
Dikanbayev, Member of the Board of Temir bank Aidos Mukatayev, and 
Zhanibek Djumamukhambetov were sentenced to eight years' 
imprisonment.  Alexei Domashenko, Yermek Zhanybekov, Janna 
Bekbayeva, and Yerlan Beisekeyev -- all from affiliated companies -- 
were sentenced to five years.  Chairman of Temir bank's Board of 
Directors Ablakhat Kebirov and Daulet Dashev were sentenced to 2 
 
ASTANA 00002264  004.3 OF 004 
 
 
years.  The judge handed down longer sentences than requested by the 
prosecution.  The defense attorneys are filing appeals on this and 
other grounds.  Deputy Chairman of BTA bank Genrig Kholodzinskiy was 
sentenced to only five years' probation because of evidence that he 
had voted against some of the bad loans, his age (63), and his many 
state awards, including medals from President Nazerbayev. 
 
¶15.  (U) This trial also is considered important as a source of 
additional evidence against Ablyzov, Zharimbetov, and Solodchenko. 
The prosecution granted immunity to Rifat Rizoyev and up to 40 
others in exchange for their testimony, which will likely also be 
used in the subsequent trials.  As a result, Ablyazov's attorney 
Salimzhan Mussin had complained about access to the evidence. 
 
VALYUT-TRANSIT BANK 
 
¶16.  (U) Indira Sagindykova, the former co-Chairperson of 
Valyut-Transit Bank (VTB), was tried on charges of illegal 
entrepreneurship, money laundering, and abuse of power.  A Karaganda 
District Court sentenced Sagindykova's ex-partner, Andrey Belyayev, 
to three and a half years in prison for the same charges in July 
¶2008.  Nonetheless, Belyayev continues to allege Sagindykova's sole 
responsibility for crimes committed at VTB and her personal issuance 
of loans to shell companies.  In August, a Karaganda Regional Court 
found Sagindykova guilty of illegal entrepreneurship and money 
laundering and sentenced her to three years in prison. 
 
PREVENTIVE MEASURES TO BE PUT IN PLACE 
 
¶17.  (U) The FSA plans to introduce new bank requirements in January 
2010 for offshore loans.  According to Chairwoman of the FSA Elena 
Bakhmutova, these regulations will prevent future schemes, such as 
those allegedly used at BTA Bank, in which loans made to offshore 
companies were transferred between other offshore companies before 
they finally funded businesses in Russia. 
 
¶18.  (SBU) COMMENT:  Certainly, the connections of many senior 
banking officials (ref C) cause some, including those accused, to 
argue a link between the explosion in cases against commercial banks 
and a bloody political battle.  However, egregious practices in the 
banking system, including significant theft, occurred, for which the 
Kazakhstani government now is paying.  Therefore, the government's 
bail-outs of Alliance and BTA banks probably played a stronger role 
than political infighting.  Along with the conclusion of 
restructuring (ref D), the government certainly sees these criminal 
cases as an important step toward the rehabilitation of its 
financial sector.  END COMMENT. 
 
HOAGLAND