Zeromax creditors’ claim for Gulnara Karimova’s ill-gotten assets is neither legitimate nor fair

Federal Assembly of Switzerland

Swiss Federal Council

Federal Department of Foreign Affairs (FDFA)

Federal Department of Justice and Police

Task Force on Asset Recovery, FDFA

Swiss Agency for Development and Cooperation, FDFA

  

Statement by Uzbek civil society activists

We, a group of Uzbek activists, have raised numerous concerns regarding the fate of stolen Uzbek assets owned by Gulnara Karimova. These assets are currently frozen in Switzerland and other European countries. We have made repeated calls for the responsible repatriation of Karimova’s assets to Uzbekistan, under the precondition of anti-corruption reforms to be adopted and implemented in Uzbekistan in the interests of the Uzbek people – the true victims of grand corruption in Uzbekistan. This time, our statement is prompted by another concern: the deepening efforts of Zeromax GMBH’s former creditors to obtain Karimova’s illicit assets as compensation for losses incurred in dealing with Zeromax GMBH. We find these claims to be illegitimate, dubious, and legally questionable.

  

Background to Zeromax GmbH

                           

Zeromax GmbH was initially registered in Delaware, United States as Zeromax LLC and then moved to Zug, Switzerland registering as Zeromax GmhB from 2005, before being dissolved in 2010. Although Zeromax GmbH was legally owned by Mirdjalil Jalalov and his wife, the company received full and exclusive support from the government of Uzbekistan, allegedly due to Gulnara Karimova. With this privileged support, they rapidly acquired highly lucrative deals, assets and preferential business positions in sectors including: oil and gas extraction, transportation and export, cotton and textile industries, manufacture, soft drinks, mining, food processing. Within a few years, Zeromax became the largest investor into Uzbekistan’s economy, with 22 subsidiaries, an operating revenue of $3 billion, and assets of $1.7 billion (2008).  Such a high-level position within the Uzbek economy - a profoundly corrupt environment, deeply embedded within a system of patronage – was impossible to achieve without the Uzbek government’s exclusive support at all levels.  Yet, Zeromax faced challenges from rival groups within the Uzbek ruling elite, notably from the National Security Service. As a result, in May 2010, a Tashkent court seized Zeromax’s assets due of tax defaults, and in October of that year, the company was declared insolvent, with creditors left unpaid.

  

Creditors’ claim

     

Our understanding is that Zeromax’s unpaid creditors have filed a claim with Swiss authorities urging them to allocate $800 million of Gulnara Karimova’s frozen assets (pending their confiscation) to them, in order to compensate for their losses in Uzbekistan. This claim is based on allegations Gulnara Karimova was the beneficial owner of Zeromax.

      

In our view, given the role the government of Uzbekistan played in pushing Zeromax to bankruptcy, the creditors should instead direct their claims to the Uzbek authorities who are responsible for Zeromax’s financial problems. The government allowed Zeromax to take control over one lucrative asset after another but then forced the company to fund expensive projects that had nothing to do with commercial business - construction of the Palace of Forum, a stadium, a sport school, various charitable expenses that were probably forced. These projects ultimately went unpaid by the Uzbek government and were a key reason for Zeromax’s indebtedness.

  

Negligence of Due Diligence, Political Risk and Code of Compliance

    

We believe Zeromax’s creditors were aware of the dubious background of Zeromax. There was sufficient press coverage well before Zeromax’s bankruptcy that linked Gulnara Karimova to Zeromax. It is highly likely the creditors expected preferential business options, a favorable business environment, and lucrative business opportunities, akin to the expectations of telecom companies (TeliaSonera, Vimpelcom and MTS) had when negotiating shadowy deals with Gulnara Karimova.

   

Zeromax’s creditors are yet to publicly disclose their identity and announce their claims against Karimova publicly, likely owing to the circumstances surrounding their relationship with Zeromax. They have not presented any public arguments to support their claims that money was stolen from them, not the Uzbek people. 

   

As members of Uzbek civil society, we have a right to know whether creditors violated the code of compliance and failed to meet integrity standards in pursuing business with the company closely associated with the corrupt presidential family. We demand full transparency and disclosure of all contracts and related communication with Zeromax, as well as convincing responses for the following questions: 

   

• Why were political risks of a company associated with a corrupt regime ignored?

• Why was a comprehensive due diligence assessment not undertaken? A rudimentary assessment using open source data would have unearthed Zeromax’s problematic background.

• Why invest millions in a company with only $20,000 of charter capital, and why not protect their business by properly insuring it against the respective risks?

• It is difficult to imagine the creditors were unaware of the political and due diligence risks of engaging with Zeromax; and the fact that Zeromax was controlled by Gulnara Karimova, not Mr. Jalalov. 

       

Suspicion of Fraudulence

                                                               

There appears to be inconsistencies (to tell the least) with the creditors’ claims. For instance, we have seen an audit report prepared for one of the creditors, the Russian company ETK LLC (in Russian, ООО «ЕТК»). This document prompts us to suspect of an element of fraud in the claim advanced by this company. The report, a copy of which the Swiss authorities are likely to have, stated ETK had claimed $395 million as compensation for the unpaid delivery of steel pipes to Zeromax. It is clear from the report that there was only one contract between ETK and Zeromax (No. T1/67-06) to the amount of $100 million, and that ETK had complained about payment delay under that contract. ETK claims that, despite of having been unpaid for the previous deal, it entered into a subsequent agreement with Zeromax to deliver pipes for $268 million. Yet the report authors present no proper contract nor contract number identifying the agreement. Looks like the second deal has the key hallmarks of a fraudulent scheme similar to the Russian Laundromat: sign a fake contract and claim a refund for not fulfilling it, followed by kickbacks and money laundering through offshore accounts.

       

Although the audit report does not provide the full name of ETK, they can be easily identified as Eurasian Pipeline Consortium, LLC (ООО «Евразийский трудопроводный консорциум»), one of the very few Russian companies selling steel pipes. Interestingly, ETK is in fact re-selling pipes produced by the Khartsyzk pipe plant in Donetsk, a breakaway Ukrainian territory controlled by separatists. A subsidiary of Metinvest, the Khartsyzk pipelie plant is controlled by Ukrainian oligarch Rinat Akhmetov. ETK is owned  by another company with the same name, Eurasian Pipeline Consortium, LLC, whose main owner is  Alexander Karmanov, a shadowy figure close to oligarchs Arkady Rotenberg and Gennady Timchenko, both of whom are subject to US and EU sanctions.

    

Request to Swiss Authorities

                           

We support the Swiss authorities decision to reject the creditors’ claim for Gulnara Karimova’s assets and urge them to maintain this position. As stated, based on the public interest nature of this case, the creditors should provide full public transparency on their past relationships with Zeromax before any compensation deal is considered with the Swiss and Uzbek authorities.

   

We wish to reiterate our call upon the Swiss authorities to return Gulnara Karimova’s assets to Uzbekistan responsibly. This would include a framework, benchmarked against anti-corruption reforms, that aim to eliminate the institutional conditions which permitted corruption in the telecommunication sector before the assets are returned.

  

So far, Uzbekistan has made little to zero progress in Uzbekistan’s anti-corruption reforms; and the telecommunication sector is showing the trademark signs of reoccurrence. The government recently issued a decision to grant only one of Uzbekistan’s three major mobile operators (state-owned UMS) direct access to the World Wide Web, thereby undermining fair competition for other operators in the industry (who can only access the internet via state-run Uzbektelecom). In other sectors, especially the construction industry, we also see risks of corruption and money laundering on the rise. 

  

Governance related problems still remain, which underscore the need for a benchmarked approach to guide the return of stolen assets to Uzbekistan, in order to tangibly reduce the risks of grand corruption, misuse of returned assets and support longer-term initiatives for anti-corruption reforms in Uzbekistan.

   

Nadejda Atayeva, on behalf of Association for Human Rights in Central Asia, Le Mans, France, n.atayeva@gmail.com

Umida Niyazova, on behalf of Uzbek-German Forum for Human Rights, Berlin, Germany, umida.niyazova@gmail.com

Jodgor Obid, Uzbek political refugee, resident of Austria

Dilya Erkinzoda, Uzbek political refugee, resident of Sweden

Alisher Abidov, political emigrant, resident of Norway

Alisher Taksanov, journalist, political emigrant, resident of Switzerland

Uzbekistan: Call for Murad Djuraev to be posthumously rehabilitated

Murad Djuraev

Association for Human Rights in Central Asia (AHRCA), International Partnership for Human Rights (IPHR), Norwegian Helsinki Committee (NHC) and the Uzbekistan-based NGO Restoration of Justice, call for the posthumous rehabilitation of former Member of Parliament Murad Djuraev, on the anniversary of his death. Murad Djuraev spent more than 20 years of his life in prison on politically-motivated charges and died on   4 December 2017, after being released on health grounds. The organizations also urge the Uzbekistani authorities to ensure justice for former prisoners of conscience like Murad Djuraev who were convicted in unfair trials, and ensure accountability for past abuses.

We call on the authorities to facilitate access of Murad Djuraev’s relatives to the court sentences against him and to give them the opportunity to rapidly appeal the sentence imposed on him, and thus clear his name.

• Murad Djuraev

Murad Djuraev worked as chairman of the executive committee of the city council of Mubarek (in

the Qashgardaryo Region of Uzbekistan, near Bukhara), before becoming a Member of Parliament in 1991- 1992. He fell out of favour with President Islam Karimov after he was the first Uzbekistani official to dissolve the Communist Party committee in his city after the Soviet Union collapsed. He believed that only with the active participation of civil society would the abolition of child labor in the cotton sector be achieved in Uzbekistan and highlighted the need for accessible education, as well as about the role of political opposition in political processes. His critical speeches in parliament and his support of the political opposition put him at risk of reprisals and he escaped to Kazakhstan, where he lived in hiding.

On 18 September 1994, Murad Djuraev was abducted in Almaty and subsequently held in the prison of the National Security Services in Uzbekistan, where he was subjected to torture and threats of reprisals against his relatives. He was charged with committing especially grave crimes, including “treason”, “conspiracy to seize power” and “calling for the violent overthrow of the constitutional order or for violating the territorial integrity of the Republic of Uzbekistan”.

On 31 May 1995, the Supreme Court sentenced him to 12 years in prison, but the term was

reduced to nine years under amnesty. Subsequently, his prison sentence was extended no less than four times for “disobeying prison rules” (Article 221 of the Criminal Code of Uzbekistan, in 2004, 2006, 2009 and 2012. He was, for example, accused of “badly cleaning the carrots” in the prison kitchen or “not taking his shoes off when entering the prison quarters”. Each time his sentence was extended just as his term of imprisonment was to end or on the eve of an amnesty announcement.

Following international pressure, he was released in November 2015 in very poor health. With great difficulty, he received a passport and permission to travel abroad for treatment, but died before he was able to leave for a planned operation in Germany. He died on 4 December 2017 at the age of 65.

The process of reviewing the case of Murad Djuraev and other previously convicted civil society activists and prominent public and political figures has not yet begun in Uzbekistan. Even after his death, Murad Djuraev’s children continue to experience discrimination with access to education and employment. His son Abror Djuraev, who works at the hosiery factory at the Mubarek Gas Processing Plant in the Kashkadarya region, is openly referred to as an “enemy of the people” by the deputy director for agricultural work and lost his job last September.

• Ongoing human rights violatins 

Currently, thousands of prisoners are serving prison sentences imposed under the previous and the current regime after being convicted in unfair trials for serious crimes such as “violating the constitutional order” (Article 159 of the Criminal Code), “producing or distributing matrials that threaten public security and order” (Article 244-1) or “establishing, leading or participating in religious extremist, separatist, fundamentalist or other prohibited organizations” (Article 244-2). These articles that are vaguely worded and allow for broad interpretation, have in many cases been misused against critics or perceived government critics, such as Murad Djuraev.

Under President Shavkat Mirziyoyev, over two dozen civil society activists and political dissidents have been released from unjust imprisonment, decisions which have been welcomed by the international community. However, not one of them has been fully rehabilitated and those responsible for their persecution have not been brought to justice. Many suffered torture and other ill- treatment in detention as they were forced to provide false confessions. Yet, the perpetrators have escaped justice and the victims and their families have not received compensation and full redress.

Visit of Shavkat Mirziyoyev to Paris. What is the state of freedoms in Uzbekistan ?

The President of Uzbekistan Shavkat Mirziyoyev will visit Paris on October 8-9

This is the first summit that the two leaders will hold after the EU sanctions against Uzbekistan, which lasted from 2005 to 2009. As is well known, the previous President and dictator Islam Karimov became a de facto persona non grata in Europe, after the Uzbekistani authorities refused to conduct an independent international investigation into the Andijan tragedy in May 2005, when thousands of peaceful demonstrators were shot by government forces. In subsequent years, distrust of Karimov intensified, also because his daughter Gulnara Karimova turned out to be a defendant in criminal proceedings in twelve countries of the world facing charges of corruption and money laundering.

In September 2016, after the death of Islam Karimov, Shavkat Mirziyoyev came to power in Uzbekistan. After his election as president in December 2016, he referred to himself as the son of Islam Karimov and began to perpetuate his memory.

In the first two years of his presidency, several processes can be noted. On the one hand:

—  29 activists were released;

— The country began to accept visits by international human rights organizations;

— During their speeches, representatives of the authorities began to more often criticize systemic state abuses.

However

—  The trials of officials involved in torture and corruption are closed;

—  None of the released prisoners of conscience has received full rehabilitation and compensation for the years spent in prison cells and damaged health;

— Rustam Inoyatov - the former head of the National Security Service of Uzbekistan and the executioner of Andijan remains among the closest state advisers to the President;

— the executive branch still controls all branches of government, and parliament and the justice system are deprived of independence from administrative bodies;

— the government has not made significant progress and transparency for society in the creation of anti-corruption mechanisms;

— mass violations of the rights to housing of citizens who are illegally evicted from their homes under the pretext of building projects, which are carried out without open tenders;

— Many political refugees who were forced to leave their homeland because of repression were deprived of Uzbek citizenship and some of their property has been illegally confiscated.

We, citizens of Uzbekistan, living in different countries, will demonstrate on 9 October 2018, on the streets of Paris with banners and political posters, along the route on which the French President Emanuel Macron will pass. We will be wearing masks of people from his inner circle who influence his policies as we protest against human rights violations and large-scale corruption in Uzbekistan.

We intend to draw the attention of President Emanuel Macron to significant shortcomings in the domestic policy of the Uzbek President. We hope President Macron will call on his Uzbek counterpart for real and consistent reforms.

Open letter to Emmanuel Macron ahead of President Mirziyoyev’s visit to France

M. Emmanuel MACRON
Président de la République française
Palais de l'Elysée
55 Rue du Faubourg Saint-Honoré
75008 Paris¨

Paris, Brussels

5 October 2018

Dear President Macron,

International Partnership for Human Rights based in Belgium and Association for Human Rights in Central Asia an organization set up by political émigrés in France, appeal to you to use the occasion of the first state visit to France of President Shavkat Mirziyoyev of Uzbekistan on 8 October 2018 to call for concrete improvements in the area of fundamental rights to build on the process of opening witnessed in Uzbekistan over the past two years. 

Since coming to power in 2016, President Mirziyoyev has taken some steps to address Uzbekistan’s dismal human rights record. For example, at least 29 civil society activists, independent journalists and political opposition activists were released from prison; at least ten perpetrators of torture have been brought to justice; and several international human rights groups have been invited to the country in a demonstration of Uzbekistan’s new penness to discuss human rights concerns.

However, more is needed to ensure that these initial steps are sustainable, that human rights are truly protected in Uzbekistan, and that the principles of the rule of law are respected and implemented. The authorities continue to persecute actual and perceived government critics for peacefully exercising their right to freedom of expression and torture and ill-treatment continue to be reported. President Mirziyoyev’s government should implement the following recommendations as a matter of urgency:

1. Ensure justice for those convicted in unfair trials, and ensure accountability for past abuses

Thousands of prisoners are serving prison sentences imposed under the previous and the current regime after being convicted in unfair trials for "violating the constitutional order" (Article 159 of the Criminal Code), “producing or distributing materials that threaten public security and order” (Article 244-1) or “establishing, leading or participating in religious extremist, separatist, fundamentalist or other prohibited organizations” (Article 244-2). These articles allow for vague interpretation by the authorities and have in many cases been misused against critics or perceived government critics and religious believers who worship outside state-sanctioned places of worship. Many people have been targeted for peacefully exercising their right to freedom of expression.

To date no effective investigation has been carried out into the tragic events in Andijan in 2005, when security forces killed hundreds of largely peaceful demonstrators, including women and children.

Under the new President, over two dozen civil society activists and political dissidents have been released from unjust imprisonment, but they remain under close surveillance. Not one of them has been fully rehabilitated and those responsible for their persecution have not been brought to justice. Many suffered torture and other ill-treatment in detention to force them to provide false confessions, but the perpetrators of torture have escaped justice and the victims have not received compensation and full redress. Many lawyers are afraid to take up their cases for fear of reprisals.

The Uzbekistani authorities under President Mirziyoyev continue to restrict freedom of movement preventing people from travelling abroad, specifically targeting government critics. Space for civil society and human rights groups and activists in Uzbekistan remains severely limited. In addition, political émigrés have had their Uzbekistani citizenship withdrawn and their property in the country confiscated.

2. Endow the judiciary with full independence and ensure transparent court Proceedings

Judicial reform announced by President Mirziyoyev in February 2017 will only be effective if the judiciary becomes fully independent, if fair trial standards are scrupulously observed and reforms are transparent and accompanied by open public discussion.

Under the rule of President Mirziyoyev many state officials accused of serious crimes have been held behind closed doors. Some officials have been accused of torture or illtreatment, but little information is publicly available. The Uzbekistani authorities have also blocked information about the detention and criminal investigation ongoing against the eldest daughter of former President Islam Karimov, Gulnara Karimova. Although in 2017 the Prosecutor General finally clarified the charges against her they process has been kept out of the public eye. In these cases, it is believed that the authorities have refrained from ensuring transparency in order to prevent information from emerging that would incriminate members of the current government.

3. End widespread torture and other ill-treatment

President Mirziyoyev’s government has taken steps to address widespread torture including. At least ten police officers implicated in torture as well as a number of prisoners who were found guilty of torturing detainees on behalf of police officers have been brought to justice; legislation has been adopted that prohibits the use in court of evidence obtained through torture and of using torture against relatives of detainees and suspects; the Criminal Code has been amended to strengthen punishments for torture; and Uzbekistan accepted recommendations issued during the United Nations Periodic Review to ratify the Optional Protocol to the Convention against Torture and other Cruel, Inhuman or Degrading Treatment or Punishment.

However, human rights groups continue to receive credible allegations of torture and other ill-treatment indicating that the practice continues and that systematic reforms are necessary.  Rerpetrators are punished only in exceptional cases. There is no system for confidential complaints and no independent investigatory mechanisms for allegations of torture; and there are no known cases where victims have received compensation for moral damages. It is also important that officials found guilty of torture and ill-treatment receive punishments which are commensurate with the gravity of the crime.

4. Improve prison conditions and give independent experts access to etention facilities for human rights monitoring

In Uzbekistan independent monitors do not have access to detention facilities and prisons for the purpose of monitoring. According to former prisoners and prisoners’ relatives, living conditions in detention facilities and prisons continue to be extremely poor and access to medical care is restricted. Statistics on the number of prisoners in Uzbekistan are classified as confidential and no details are published about the high mortality rate among the prison population.

5. De-criminalize homosexuality

Article 120 of the Criminal Code punishes consensual sex between adults and legalizes discrimination against LGBTI people. The article has also frequently been used to discredit and punish government critics. 

We ask you to raise these issues during your discussions with President Mirziyoyev.

Yours faithfully

Brigitte Dufour                                                                  Nadejda Atayeva

Directrice International Partnership                                    President of the Association for Human Rights for Human Rights                                                                     in Central Asia