Kyrgyzstan

Kyrgyzstan Corruption Report

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Snapshot

Kyrgyzstan.pngCorruption is pervasive throughout all sectors in Kyrgyzstan; bribery is a common part of doing business. Apart from petty corruption, businesses are likely to experience favoritism and political interference. Recently, several reforms have been undertaken by the government, but a corrupt judiciary undermines their effectiveness. Kyrgyz anti-corruption efforts are growing but remain inadequate. Active and passive bribery are criminalized; however, enforcement of anti-corruption legislation overall is lacking.

Last updated: July 2016
GAN Integrity

Judicial System

Corruption in the judicial system is a very high risk for companies in Kyrgyzstan. The reported recurrence of bribes and irregular payments in relation to judicial decisions is among the highest in the world (GCR 2015-2016). Many attorneys report that bribes to judges are more effective for determining the outcome of trials than legal arguments (HRR 2015). Businesses are also likely to experience political interference (ICS 2015). The prevalence of political interference was illustrated when the government of Kyrgyzstan revoked a license by the company CJSC to develop one of the largest gold mines in 2010 and the Supreme Court dismissed the company's appeal to litigate the government's decree (ICS 2015). In this way, the judicial system does not act as an independent arbiter for resolving disputes, especially when the interests of the Kyrgyz government are involved (ICS 2015). 

A reform process was started in 2010, but this process is highly politicized and subject to corruption as the president and the parliament tried to select judges loyal to their political agendas (BTI 2016). The judicial branch thus remains the weakest and most corrupt part of the state (BTI 2016).  

Kyrgyzstan is a member of the International Center for the Settlement of Investment Disputes (ICSID) and is signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Police

Corruption in the police force is a high risk in Kyrgyzstan. Nepotism and unprofessional conduct lead to operational inefficiencies, and some local police units are under the informal influence of local government officials, especially in the south (BTI 2016). It is very common to pay bribes to law enforcement to avoid investigation or prosecution (HRR 2015). Similarly, police officers abuse their functions by employing arbitrary arrests and the threat of criminal prosecution as a means of extorting cash payments from citizens, especially in the south (HRR 2015). Foreign persons in Kyrgyzstan have special colored license plates, which allow the police to identify and target them regularly (ICS 2015). Business lacks confidence in the reliability of the police service to enforce law and order and reports that incidences of crime and violence impose costs on companies (GCR 2015-2016).  

Public Services

Corruption is a very high risk when applying for licenses and permits for utilities. There are few official procedures necessary to set up a business in Kyrgyzstan, but burdensome bureaucracy and bribery complicate matters significantly (DB 2016; ICS 2015). Overall, the regulatory system is not transparent, and foreign investors have to contend with red tape, a situation that provides opportunities for bribery and facilitation payments (ICS 2015). One in six firms expect to give gifts or make undocumented extra payments to obtain an operating license (ES 2013). Similarly, the implementation of regulations is marred by corruption and outside influence (ICS 2015). Judicial decisions regulating commercial transactions can be inconsistent with established procedures and can be expedited in certain cases (ICS 2015). Foreign investors can turn to the Investment Promotion Agency to obtain assistance with bureaucratic procedures and information about potential investment projects.  

Public utilities are also extremely affected by bribery as almost two-thirds of companies expect to give gifts to get a water connection, and most report the necessity to give a bribe when obtaining an electrical connection (ES 2013).

Land Administration

The lack of transparency in the judicial system and corrupt law enforcement authorities undermine the protection of property rights (BTI 2016). However, the quality of the Kyrgyz land administration in terms of reliability of infrastructure, transparency of information, geographic coverage and land dispute resolution is considered high (DB 2016). Similarly, registering property is very easy, requiring just three procedures (DB 2016). 

Tax Administration

Corruption is a high risk in the Kyrgyz tax administration. Businesses filing their taxes commonly make undocumented extra payments (GCR 2015-2016). Similarly, when meeting with tax officials, one in two firms expects to give gifts or pay bribes (ES 2013). 

Customs Administration

Corruption at the borders of Kyrgyzstan is the most problematic factor for importing and exporting goods (GETR 2014). Companies should be aware that irregular payments often occur (GCR 2015-2016). Trade is impeded by inefficient customs procedures (time-consuming paperwork must be filled in to clear goods at the border) (GETR 2014). Corruption and bribery in these processes are not uncommon: More than two-thirds of companies expect to give gifts to obtain an import license in Kyrgyzstan (ES 2013).

Public Procurement

Corruption is a high risk for companies involved in Kyrgyz public procurement. It is common for companies to make undocumented extra payments or bribes in connection with public contracts and licenses (GCR 2015-2016). Additionally, unfair competition is a problem in Kyrgyzstan as favoritism to well-connected firms and individuals plays a big role when officials decide upon contracts (GCR 2015-2016). Public funds are often diverted in an illegal manner (GCR 2015-2016). In an effort to combat corruption risks in public procurement, the government has increased transparency by launching a centralized web portal to publish all relevant information and documents in a single access point (World Bank, June 2015). Companies are recommended to use a specialized public procurement tool to mitigate the corruption risks associated with public procurement in Kyrgyzstan.

In 2016, a commission set up by the parliament alleged the government had broken the law by rigging a USD 100 million road construction tender to ensure it was given to a Chinese firm that lacked the required license (Reuters, Apr. 2016). The Kyrgyz prime minister at the time, Temir Sariyev, and his cabinet denied wrongdoing but subsequently resigned (Reuters, Apr. 2016). 

In July 2015, Osh mayor Melis Myrzakmatov was sentenced to 7 years in prison and received a fine for abuse of office relating to several public works projects (e.g., he received kickbacks from the construction of new bridges) (Silk Roads Reporters, Aug. 2015; FitW 2016). Myrzakmatov's sentence was read in absentia, as he had already fled the country (Silk Roads Reporters, Aug. 2015). 

Natural Resources

Corruption, political interference, and unclear regulations are notable risks for foreign investors in Kyrgyzstan's natural resource sector. Overall, there is a lack of transparency in the regulatory system, but investors face even more uncertainty concerning politically sensitive areas such as natural resource extraction. The allocation, reallocation and suspension of mining licenses is subject to continuous discussion in the legislative and executive branches of government, and investors spend much of their time re-negotiating contracts (ICS 2015).

The above is well-illustrated in the case of the Canadian-owned Kumtor gold mine, which is in continuous negotiations with the Kyrgyz government about their foreign investment agreement and the gold mine's shares (ICS 2015). Deals regarding the restructuring of shareholding agreements between the Canadian company and the Kyrgyz government were littered with corruption; dubious payments were made to an offshore firm allegedly connected to the former Kyrgyz president Akayev (Trace International, 2016). In July 2015, former CEO of Centerrra Homeniuk was detained in Bulgaria following an international arrest warrant on charges of corruption issued by Kyrgyzstan (Trace International, 2016). In October 2013, ten former government officials were charged with corruption over the restructuring deals; however, five fled to Russia and the others were ultimately released due to the statute of limitations (Trace International, 2016).

Legislation

The scope of anti-corruption activities and laws in Kyrgyzstan is continuously growing, but as of right now still ineffective (BTI 2016). Kyrgyz law criminalizes active and passive bribery of domestic and foreign public officials (OECD 2015). Extortion, abuse of office, money laundering are also criminalized. Commercial bribery and abuse of office in the private sector are criminalized, but only persons with managerial functions in a company can be held responsible (OECD 2015). Intangible benefits in private sector bribery are not contained in the law (OECD 2015). The liability of companies for corrupt practices is not provided in Kyrgyz legislation (OECD 2015). The Kyrgyz government encourages the implementation of compliance programs, however, especially Kyrgyz companies are in lack thereof (OECD 2015). Public officials are required to publish their income and assets, however this is not regularly enforced (HRR 2015). 

Kyrgyzstan has ratified the United Nations Convention against Corruption (UNCAC) but has not signed the OECD Anti-Bribery Convention

Civil Society

Freedoms of speech and press are provided by law but are severely restricted in practice (HRR 2015). Self-censorship is very common, and some journalists report intimidation and harassment by political figures (HRR 2015). Kyrgyzstan lacks diversity in its media both in terms of viewpoints and in terms of language (FotP 2015). Following ethnic conflict, Uzbek-language outlets face a challenging environment, and critical Russian or Uzbek media is very limited (FitW 2016). Internet access is growing, but legal and technical limitations on online content restrict users (FotN 2015). The Kyrgyz status of the press is considered "not free" (FotP 2015). 

There are many legal restrictions on freedoms of assembly and association, but in practice the enforcement of such laws is easing (FitW 2016). Kyrgyzstan has an active civil society that aims to actively engage and collaborate with the government on various issues (BTI 2016). NGOs have overseen local elections, contributed to ethnic reconciliation and pushed for various policy reforms (NiT 2016; BTI 2016). Various associations and entrepreneurs also contribute and actively engage in policy critique (BTI 2016). Nevertheless, there are regional differences: Most civil society actors operate in Bishkek, while Osh or Jalal-Abad are known to obstruct NGOs' work (BTI 2016). 

Sources

Topics: Europe & Central Asia