Not So Isolated After All, Central Asia
The region is much more dexterous and active in the global system than generally assumed.
Central Asia is often considered one of the most isolated regions worldwide, and for good reason. To select one metric to make the case, Central Asia far outpaces anywhere in the amount of time required for import/export of goods. Where South Asia takes an average of 33 days to export and 34 days to import, Central Asia more than doubles these rates, with an average of 67 days to export and a remarkable 79 days to import goods. Not exactly the most accessible hub for trading. But where Central Asia lags in term of trade, the region more than makes up for in other arenas – much like powerful elites elsewhere in the world, Central Asia’s leaders are using international financial and legal systems to further their interests.
As the University of Exeter’s John Heathershaw and Columbia University’s Alexander Cooley recently found, “this assumption of Central Asia’s economic isolation is highly selective and largely inaccurate.” As Heathershaw and Cooley noted, examining the emerging trends within financial offshorization allows observers to find “multiple connections between the Central Asian region and the global economy, often via post-Soviet business networks and global legal institutions.” Central Asia may take weeks more to transit goods, and external traders may find frustration in attempting to tap into Central Asian markets, but those atop the region’s economic ladder – the elites within the region’s financial and political sectors – have proven more than able in cracking into the international financial system. Heathershaw and Cooley summed it up like this: “Central Asian elites have learned to use global financial institutions and offshore vehicles to split the legal personality of nominally state-controlled assets. … Far from operating in isolation, the Central Asian states, even those with more closed national economic systems … have embedded their transactions, or at least their most significant transactions, in a set of informal transnational networks with global reach.”
But it’s not simply that these regional elites have found stowaway spots for their wealth in Delaware, Panama, and the British Virgin Islands. The regimes have begun accessing foreign legal structures – as well as discovering that moving money between offshore havens and front companies is fine and good until someone catches on. Two cases over the past month have helped highlight just how keyed-in the regimes have become regarding international institutions, but not necessarily always in ways that benefit the ruling claques.
The first – involving pop stars, pilfered artwork, and billions in bribes – emanates from the ruling family in Uzbekistan. Gulnara Karimova, daughter of President Islam Karimov and once the country’s leading debutante, has seen her financial empire crumble. Where Karimova once stood atop both music charts and political schemes alike, she now chafes under house arrest, her pleas for clemency falling on the deaf ears of those who oversaw her ousting.
But Karimova’s troubles don’t stop with a broken pop-music career and frozen assets in Switzerland; rather, it appears her financial issues have only just begun. According to the Wall Street Journal earlier this month, the United States has requested that European officials seize a total of nearly $1 billion in assets linked to Karimova. While Karimova is never explicitly named in any of the court documents thus open to the public, the newspaper cites “people with direct knowledge of the criminal investigation” that have tied her to the case.
The investigation, information about which has continued trickling out over the past few months, deals largely with claims that Dutch Vimpelcom Ltd., Russian Mobile TeleSystems (MTS), and Swedish TeliaSonera provided hundreds of millions of dollars to Karimova and her inner circle in order to access the Uzbek market. In a similar fashion to the U.S. investigations into bribery and corruption within FIFA, the U.S. case for jurisdiction lies within the fact that Vimpelcom and MTS continue securities trade in the country, while TeliaSonera “could be subject to U.S. oversight if its deals involved the U.S. financial system.”
According to at least one Justice Department official, the U.S. is looking to seize $300 million in related funds in Ireland, Belgium, and Luxembourg, following the $30 million the U.S. requested Sweden freeze last March. Now, the U.S. has requested that Switzerland freeze $640 million in assets, including a lakeside villa.
To even those inured to Central Asian corruption, the final total remains impressively high, and involves a series of offshore front companies in Gibraltar and elsewhere. The bribery process involved was deceptively simple: “TeliaSonera, MTS and Vimpelcom … would sell stakes in their Uzbek operations to front companies linked to Ms. Karimova, and later buy those stakes back at significant premiums, according to regulatory filings and court documents.”
While Karimova remains under house arrest – and while the U.S. continues highlighting not simply how attuned Central Asian elites are to offshore methods, but also how rapidly it can backfire – Kazakhstan has attempted to manipulate external regulatory structures for a different purpose. Recently, the Kazakh government filed suit in federal court in the United States. The government cited the Computer Fraud and Abuse Act (CFAA) in attempting, the government claims, to stifle the spread of leaked governmental emails. In reality, Astana has used the situation, and the U.S. court system, to attempt to isolate and suppress a specific opposition media outlet.
After nearly 70 gigabytes of email and documents were leaked last year, multiple outlets covered the story, poring through the inner workings of the officials in question. Astana, however, cited the CFAA to go after only one of the outlets which reported on the embarrassment: Respublika.
While the Kazakh government has forcibly shuttered numerous non-state outlets over the past few years, Respublika has managed to push on. Not that it hasn’t had myriad opportunities to fold. After the newspaper disclosed Nazarbayev’s decision to stash $1 billion in state oil revenues in Swiss bank accounts, Respublika found dog carcasses strewn outside both its office and founder Irina Petrushova’s apartment. As one attached note read, “There will be no next time.” The government then pressured printers into avoiding the newspaper, forcing the staff to “[piece] together a limited distribution using home printers and staples.” The pressure eventually saw the elimination of the paper’s print run in 2014, meaning Respublika exists online only now. Even then, however, reaching readership remains difficult, as the outlet suffers continual distributed denial-of-service (DDoS) attacks. According to the Electronic Frontier Foundation, a U.S.-based organization defending Respublika, “In order to access Respublika’s news from within Kazakhstan, readers must either find ways around the blocks or access the content through social media sites.”
Now the Kazakh government is trying to use the U.S. court system to eliminate Respublika altogether – even attempting to use the court “to pry personal information about Respublika employees and volunteers.” As EFF pointed out following the initial injunction, “Kazakhstan [is] willfully abusing the court’s order.” The legal outcome remains up in the air, but EFF has helped clarify that the Kazakh government is targeting Respublika specifically. As EFF wrote, Kazakhstan “has not even conducted the discovery that it hopes might prove that Respublika was somehow connected to the purported theft.”
While the Respublika case doesn’t touch on the offshore and corruption practices dealt with in Karimova’s case, it nonetheless helps highlight how the Kazakh government has accessed foreign legal structures. Meanwhile, the Karimova case illustrates just how connected Central Asia is to international financial systems (and how capable its elites are in maneuvering around them – until someone gets caught, of course.) Central Asia may stand as the global laggard when it comes to goods transfers, but as it pertains to either stashing illicit funds in tax havens or utilizing external legal means to help stifle opposition, Central Asia’s regimes remain as cognizant of opportunities and as dexterous at seizing those opportunities as any others around the world.