Dealing with a Bad Reputation: Corruption Scandals in Central Asia

At one point, only a few years ago, Gulnara Karimova was pegged as the likely successor to her father, Uzbekistan’s President Islam Karimov. Rising out of Uzbekistan’s opaque internal politics, Karimova positioned herself – using her lineage, her diplomatic credentials, and her music-and-perfume empire – as the most logical heir to the presidency. Her reputation as a “robber baron” seemed to matter little. Her path appeared clear.

And then, everything fell apart. After 18 months of investigations and house arrest, Karimova’s standing has collapsed under a heap of corruption allegations and gleeful backbiting by political rivals. Karimova’s current status remains largely unknown; at last check, she was consigned to her house, berating local security forces tasked with keeping her and her teenage daughter, an American citizen, enclosed. Her wealth has dried up, such that she can no longer afford the PR firm tasked with convincing the international community that she’s simply the latest victim of her father’s depredations – as opposed, say, to being the country’s “single most hated person,” as one U.S. cable described her.

Karimova’s claims to succeeding her father have disappeared, along with any claims to international stardom. Her slip from glamorous pop-star to gutted pariah seems all but complete.

But Karimova’s travails haven’t ended yet. While she remains under house arrest – and while Swiss authorities impound and hold over $1 billion in assets related to Karimova’s dealings – the U.S. Justice Department continues its investigation into a series of Scandinavian telecoms for allegedly bribing Karimova for access to Uzbekistan’s cellular market.

The figures tossed around relating to Karimova’s dealings are staggering. As the Organized Crime and Corruption Reporting Project detailed, “Karimova received more than $1 billion worth of payments and ownership shares out of international telecom-related companies.” And as Bloomberg reported, the U.S. Justice Department and Securities and Exchange Commission (SEC) have joined Swedish, Swiss, and Dutch officials in investigating the telecoms in question, leading with the Amsterdam-based VimpelCom Ltd., a company owned by a handful of Russian billionaires and currently the third-largest wireless carrier in Russia. VimpelCom – which had already allocated $900 million in early November to deal with potential fines – will reportedly be facing a massive penalty of $775 million.

Further details are set for release in January, but the figure represents the second-highest tally of any penalty accrued under the Foreign Corrupt Practices Act (FCPA), a law in force since 1977 to combat bribery within foreign relations. Moreover, the Justice Department has already seized some $300 million from Irish, Belgian, and Luxembourger banks relating to the corruption probe.

All told, the Justice Department has claimed that VimpelCom and MTS, another Russian telecom, shelled out over a half-billion dollars in payments since 2004 to a series of offshore companies benefiting Karimova. (Karimova is unnamed in the complaint, but individuals familiar with the case have identified her as the ultimate benefactor of the corrupt dealings.) One of the payments, per Bloomberg, included VimpelCom’s Uzbek unit’s decision to pay “$30 million to a Gibraltar company Karimova controlled, Takilant Ltd., for consulting work that included reports copied and pasted from Wikipedia, blogs and VimpelCom’s own research, according to the complaint. The unit was awarded a coveted 4G license at about this time.” The Swedish telecom TeliaSonera, also under investigation from the Justice Department and SEC, stands accused of doling out over $358 million to one of Karimova’s associates in exchange for accessing a 3G license. TeliaSonera may yet be investigated for illegal practices in other Eurasian countries.

In addition to Karimova and her closest associates, Scandinavian heads have also rolled. The chairman of Telenor, a Norwegian telecom and one of VimpelCom’s primary shareholders, has already been forced out. Telenor also suspended an additional pair of executives relating to the company’s Uzbek dealings. TeliaSonera let its chief executive and finance director go and decided to quit the Eurasian market entirely – with plans to divest itself of operations in Azerbaijan, Georgia, Kazakhstan, Moldova, Nepal, Tajikistan, and of course, Uzbekistan.

The magnitude of the allegations dwarfs any of the Justice Department’s and SEC’s prior anti-corruption investigations in the region. Still, there are certain parallels worth noting between Karimova’s case and that of James Giffen, a former adviser to the Kazakhstani government accused of funneling over $75 million to Kazakhstani President Nursultan Nazarbayev in the mid-2000s. The payments purportedly allowed Western oil firms to access Kazakhstan’s hydrocarbon fields. (One of the lobbyists working with Giffen said he believed they were doing “God’s work.”) Charged under FCPA auspices, Giffen ended up pleading guilty to only a misdemeanor tax charge, with the presiding judge applauding Giffen’s efforts to further America’s intelligence portfolio. As Foreign Policy’s Steve LeVine reported, however, multiple CIA officers disputed Giffen’s claims of intelligence-gathering: “In short, [CIA officers] asserted, Giffen was simply another dude talking.”

As it pertained to Giffen, a series of U.S. diplomats said Nazarbayev “so dreaded being tarnished by a Giffen conviction that both he and his envoys pleaded repeatedly for the George W. Bush Administration to order the case dropped.” Indeed, the entire ordeal fits with Astana’s broader reputation for image-management – as a nation of sound governance, above-board regulation, and helping to lead a fight against internal corruption. The accusations swirling around Nazarbayev and his family – stories of snowmobiles, of luxury goods, of private tuition paid off – flew in the face of the image Kazakhstan was trying, and continues to try, to craft.

But even if the court found largely in favor of Giffen – and, by extent, Astana – the accusations have nonetheless floated into the public sphere. As one former U.S. deputy assistant secretary of state said during the case, “I can’t think of a leader in the free world as notoriously corrupt as Nazarbayev. We’ve known about his corruption for at least 15 years because our own intelligence agencies have told us.” Nazarbayev’s regime survived largely unscathed, but the ordeal revealed the sensitivity with which the president maintains his government’s international reputation.

Karimov, on the other hand, has shown no signs of lending any support to his daughter, let alone concern about how the investigations would dent his international standing. (The investigations have certainly done nothing to slow the continued supply of U.S. arms to Tashkent.) Instead, the president has been nearly silent on the matter. The little information that has surfaced regarding Karimov’s thoughts on his daughter reveals a relationship as fraught as any within Central Asia’s first families. Any hope Karimova may have maintained for succeeding her father has all but disappeared. And while an outside chance remains that another of Karimov’s daughters could take the reins, Gulnara’s detention has shifted succession prospects to the country’s security services – a murky, brutal cohort not unlike the current president.

Whoever comes next, there’s little likelihood they’ll prove any more supportive of the First Daughter than Karimov himself. And all the while, Karimova’s house arrest continues – allowing her to watch her former empire crumble, one record-setting fine at a time.