KAZAKHSTAN Country Profile

Environment, Natural Resources and Extractive Industry

Business Corruption

State-owned companies primarily operate in the oil and natural resource extraction sector and are rife with corruption, while their finances are subject to much less scrutiny than those of foreign investors, according to Transparency Kazakhstan 2003 (in Russian). The financial activities of state companies provoked a public scandal when information was released concerning the high salaries of the top managers (more than USD 300,000 per month).

Environmental inspections are not at all even-handed, as the discretion of government officials offers opportunities for corruption. Reportedly, alleged violations of environmental legislation have sometimes been used as an excuse by authorities to demand extra payments from foreign companies.

In addition to concerns about tax stability, contract sanctity, and tender transparency, companies in the oil and gas industry have reported difficulty doing business for a number of other reasons, including alleged environmental violations followed by large fines. According to the OECD Securing Resources for Environmental Regulation and Enforcement in Kazakhstan 2009, environmental authorities in Kazakhstan should not be authorised to use fines as a source of funding since this could create incentives to maximise revenue instead of compliance. This approach could also facilitate corruption, particularly if the flow of public payments is exempt from regular budget control, according to the report.

Political Corruption

As Kazakhstan has vast oil-resources, the scope for corruption in extractive industries is enormous. According to the former Finance Minister of Kazakhstan, Zeynulla Kakimzhanov, 80% of all oil companies are operating in offshore zones. In general, contracts between the oil sector and the Kazakhstani government lack transparency, as reported by the executive director of Transparency Kazakhstan, Sergei Zlotnikov. The most well-known and widely publicised instance of corruption in this sector is the 'Kazakhgate' case, in which US businessman James Giffen was accused of funnelling more than USD 78 million to high-ranking officials in the Kazakhstani government. Oil companies paid conditional deposits into a Swiss account under Giffen's control, and these funds, along with success commissions from Kazakhstan paid to Giffen's company for securing contracts with foreign oil companies, were used to pay-off two of the most senior officials in Kazakhstan - allegedly former Prime Minister Nurlan Balgimbaev and President Nazarbayev himself.

In a more recent case, a Texas-based oil company, Baker Hughes, agreed to pay a fine of USD 44 million in April 2007 after being found guilty in the US of violating US anti-bribery laws. Part of the fine is related to the complaint that the officials of the company paid USD 4.1 million in bribes to a high level Kazakhstani executive of Kazakh Oil, the state-owned company.

There is also an ongoing case against former Environment Minister Nurlan Iskakov and two of his deputies, who are charged with financial manipulation and embezzling more than USD 6 million from the state budget, as indicated in a July 2009 article by BBC News.

Frequency

EBRD & World Bank: BEEPS Kazakhstan 2005:
- 5.5% of companies report that bribery is frequent during environmental inspections.

- Companies report an average of approximately 1 visit per year from environmental inspectors lasting an average of 1.5 hours.