Corporate raid continues be a threat to owners

Vyacheslav SAPRYKIN

Rakhat Aliev is considered to be the founder of Kazakhstani classical corporate raid model. He is political oppositionist of Nursultan Nazarbaev at the moment. The corporate raid schemes inculcated by him become well-proven, if it's appropriate word, at Kazakhstani local political field and passed its creator.

Key word in corporate raid phenomena is «seizure». Mainly it's unfriendly seizure of business entities or valuable assets — territory, shares and stocks, real estate. However, don't mix up western «white collar» corporate raid with Kazakhstani «black» one. As for USA or European Union a corporate raid is a job for economists and lawyers. They use any possibility in legislation and company's charter as well as bribery of minority stakeholders to become the owners of entities de facto. Our local raiders are first of all officials, force structure's officers, court personnel and straight bandits.

Companies in US economy go bankrupt every day, but it's not about corporate raid. Russian corporate raid is somewhere between «white collared» and non colored at all criminal structures. People insolently come to entity and seized register of stockholders (some companies ran the register by themselves). The register had been destroyed, then overwritten in new way and new owners of the entity emerged. True owners and shareholders couldn't prove its rights when lawsuit has been starting. The problem grew into struggle against the corporate raid. Russian changed the legislation, and now arbitration court practice shows us that onus to proof rests on the shoulders of new owners and stakeholders. They must to prove the legality of seizure.

Kazakhstan has no examples of «white collared» corporate raid. You may put equal mark between corporate raid and racketeering. As well as the situation with seizing of land properties in Almaty peaked at 2006—2007 years is a sort of corporate raid. Unfriendly seizure of property has been done to favour of certain companies using the power authorization of state bodies.

State racketeering is the process when people with shoulder straps act by order of the group of state officials, or «agashkas» («a rainmaker», man having close links in state machine) and seize the property. It happens pretty often. The most sad phenomena in Kazakhstan is the participation of state courts in the process of seizure. One could sue to law enforcers repressions, but where can you go to sue for incompetent court decision? By this moment assailed owner is doomed.

The idea that imperfection of legislation is allegedly prohibiting to struggle with corporate raid is in contrary to facts. Existing normative legal base is quite useful for struggle with Kazakhstani corporate raid — racketeering. Abuse of official position is existing section of Criminal Code, as well as the section on misfeasance, excess of jurisdiction, corruption (because of the corporate raid process comes along with corruption), wittingly unjust court decision — are all the sections of Criminal Code and the responsibility for that is provided by legislation. Kazakhstani corporate raid schemes come along with all abovementioned crimes but citizens have possibilities to struggle with it. The political will concerned the problem of the corporate raid was made public by President of the Republic of Kazakhstan. Unfortunately, nothing positive is done yet.

The typical scheme of corporate raid seizure of business or property looks the following way. There is profitable entity. Owner's documentation and records are fine. A number of personnel are working, taxes are paying to State. «Suddenly», some strange people come to owner and ask him «to sell» the property at the rate of one to ten against the real market cost. It means if entity costs $20 million the bid price will be $2 million. Worst scenario is the request of a «gift». Some times owner may be asked to sell only 30% of equity because the main purpose it to enter the business. Kazakhstani legislation gives rights to put the entity under control by holding 30% of equity and to seize management on it.

It's easy to understand why the owner boiling over. He doesn't want nor to «make a present», neither «to sell» his entity. He tries to make his terms to receive more equitable price or give hard refusal. Next day he sees law-enforcers officials (usually it is the financial police officers) or civil officials (architectural control, tax authorities, Public Health Authority) depending to profile of business that owner runs. There's no difficulties to find some infractions within the frame of 1-2 million of tenge (for instance in tax compliance).

A criminal case is being opened. Any sanction of the Criminal Code section lets to put a person (the owner) into pretrial detention centre, and then owner tries to «buy back» his freedom. Imprisonment becomes major lever for business seizure. A person is in unbearable conditions, which could be defined as torture under international rules. He's ready to give away his business. As the result we've got a formula: «Grant for free and pay for freedom in addition». Price for freedom becomes more expensive if relatives (wife, children, etc) thrown into prison. Power pressure could be extending to defense attorneys also.

Rakhat Aliev put this scheme into sizes on his time. All attempts of selling the business to the third party in the beginning of being under pressure and while the owner holds the control under his entity usually were failed. Political power gaining by Rakhat Aliev made these attempts unfeasible. Businessman faced against the cumulative effect: police, financial police, tax authorities, intelligence services, mass-media and courts. Taking into account the issue it was ironically to hear Mr. Aliev expressed his concerns from Vienna that proprietary rights in Kazakhstan protected too badly.

If you want to seize any suburb territory or land plot it is enough to buy the interest of a certain horticultural society's chief (users' cooperative — at the moment). Without assistance of public officials you won't seize any large subject of proprietary. You can buy property without any assistance from officials support, but not to seize.

Public officials and police officers were allies of businessmen in times of criminal racketeering (middle of 90s). Entrepreneur could ask them for help and assistance. Nowadays police officers ousted bandits and criminals. To whom will you complain in this way? Supposedly, there is the special state authority — Economical and Corruption Crime Agency (the only anti-corruption subject is being subordinated directly to President of the RK and not entered to the Government, i.e. executive power). Unfortunately, there's no joy for special achievements. Vice versa, authorized representatives of the Agency are engaged in corporate raid schemes.

We do not know the case of "white collar' corporate raid in Kazakhstan when people in perfect shirts and ties began to study the project, make business indebted, manipulate by management structures at one side and have a special knowledge and 2% of shares from the other. Black corporate raids implies a lot of adversity to the Republic.
Firstly, it is mistrust to public authorities — to each and all, up to President. Secondly, it is serious economical damage. For example, Gold Product Company had plans to pay off about 1 billion tenge of taxes in 2005 year (one of the largest taxpayer in Almaty region). At the year end the sum of the tax payment was five times less due to quite corporate raid activity and company's business was almost paralyzed. So, economical losses are huge.

Businessman who has been incurred to seizing of property or threaten to it, will have to disappear from Kazakhstan. It's an outflow of entrepreneurs' resources and assets. Kazakhstan investment opportunity due to corporate raid is not being improved anyway.

Few businessmen find courage and strength to struggle with corporate raid. They use their own ties and protections and competition of resources begins. It has gone so far as to set business meetings between competitive groups in law-enforcement authorities. People, endued with authority get together and decide questions by the criminal means. Both sides have weapons, and it has ability to shoot.