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. The financial activities of state companies recently provoked a public scandal when information was released concerning the high salaries of the top managers (more than USD 300,000 per month).

Corruption is a widespread practice in the relations between oil and gas companies and state organs in, for example, securing contracts for production and regular delivery of services.

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.

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 enterprise.

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.