It sounds like a story written in Hollywood: The power-hungry daughter of a dictator vanishes, brought down by rivalry and greed, imprisoned in her home — or maybe even poisoned. Left behind are a billion dollars in frozen bribe payments, fake companies and the bitter betrayals at the center of a corrupt regime.
In Feb. 2016, the U.S. Department of Justice Kleptocracy Asset Recovery Initiative announced it was seeking the forfeiture of more than half a billion dollars held in Swiss bank accounts, which investigators had traced to bribes paid by the major telecommunications firms to Gulnara Karimova, the daughter of Uzbekistan’s former President Islam Karimov.
Nearly $1 billion is now frozen in European banks, awaiting a decision by a U.S. district court on the U.S. Justice Department’s forfeiture claim. The assets are subject to U.S. jurisdiction because they were transmitted through U.S. financial institutions on their way to accounts held in Latvia, the United Kingdom, Hong Kong, Ireland, Belgium, Luxembourg and Switzerland.
The government of Uzbekistan wants the money returned, arguing it has imprisoned everyone who was responsible for orchestrating the illicit payments. It is now in talks with the United States, and on Jan. 31 the district court granted them a 90-day extension to continue their negotiations.
If the U.S. government is successful in its seizure, it will face a decision about what to do with $1 billion of a deeply corrupt country’s money. The answer is complicated — and it speaks to what some see as a need for more creative solutions in the global anti-corruption system.
When corruption is uncovered and money is seized — which can take years — those assets usually get returned to the state from which they were stolen. But in places like Uzbekistan and other kleptocracies, where the state is not the victim of corruption but rather its perpetrator, returning the money just means putting it back into a system where it could fuel more corruption and bribery. Meanwhile the real victims — people impoverished by the state’s greed or those who’ve been subjected to extortion, or even torture — go unrecognized when corrupted assets are recovered.
“There’s no real thought about: what is the purpose of asset forfeiture? What is it designed to achieve?” said Kristian Lasslett, director of the Institute for Research in Social Sciences at Ulster University, who has been working to develop the emerging academic field of “state crime.”
“Most of these cases that we’re looking at are not white collar criminals who scam the system. They are the system,” Lasslett said.
The watchdog Global Financial Integrity estimated that illicit financial flows pouring out of developing countries totaled nearly $950 billion in 2011, which was more than seven times the amount of total foreign aid delivered that same year. Uzbekistan ranks 156th on Transparency International’s corruption index of 176 countries.
Last year, a coalition of Uzbek activists sent a letter to then-U.S. Attorney General Loretta Lynch, urging the Justice Department not to return the $850 million in frozen assets to the government of Uzbekistan, but instead to deposit the money in a transparent trust fund to be used on behalf of victims of torture.
Their proposal has surfaced a conversation about what the purpose of these corruption laws and asset forfeiture really is — and whom they serve.
The cost of doing business
On May 13, 2005, in the city of Andijan — an administrative hub of eastern Uzbekistan where the country’s jagged border reaches deep into the fertile Fergana Valley — government soldiers fired indiscriminately from military vehicles into crowds of protesters who had gathered in the city’s Babur square to air grievances of poverty, repression and joblessness. The government claims 187 people were killed. Other estimates range to upwards of 1,000. Inhabitants have reported finding unmarked mass graves on the outskirts of town.
In the aftermath of the Andijan massacre, a wealthy businessman named Sanjar Umarov joined with others to call for an international investigation of the incident, which remains shrouded in the secrecy of a police state. Umarov was part of “Sunshine Uzbekistan,” a political opposition group that pressed then-President Karimov to enact governmental reforms. Umarov was also an oligarch involved in the country’s oil and cotton sectors. At the time, he was in the midst of trying to broker a $1 billion liquefied petroleum gas project between Uzbekistan and foreign investors.
Umarov said a team sent by the president’s powerful daughter, Gulnara Karimova, demanded he pay a $50 million bribe to move the project forward, which he refused. He said his unwillingness to cooperate in the bribery scheme and his open opposition to the regime made him a target. In Oct. 2005 he was arrested and imprisoned for money laundering and tax evasion.
The businessman who some considered a potential presidential challenger was sentenced to 14.5 years in prison. He pleaded innocent, and his supporters called the conviction politically motivated. The Uzbek government seized on Umarov’s ties to the United States — his family lived in the U.S. and he worked with American companies — to accuse him of working as an American agent to help organize the uprising in Andijan, Umarov said.
“Most of these cases that we’re looking at are not white collar criminals who scam the system. They are the system.”— Kristian Lasslett, director, Institute for Research in Social Sciences at Ulster University
He said guards repeatedly tortured him to extract a confession. He was left in freezing temperatures without clothing for days, his thumb was broken, and he was choked, Umarov told Devex. He recounted the last time government agents tried to get him to confess to being an American spy.
“Official people came from Tashkent, and they wanted me to say I received $20 million from the U.S. government to overthrow the Uzbek government — and because I [could not] achieve my target I [was] hiding in Uzbek prison from the U.S. government … It’s crazy,” he said.
Countless companies vying to do business in Uzbekistan — a country of 30 million people and rich in valuable natural resources — have opted to play by the government’s illicit rules. International investors pay bribes to gain access to Uzbekistan’s markets, while nearly all businesses are subject to shakedowns inside a country where it is effectively impossible to operate legally.
Umarov was released to his family in Tennessee in 2009 thanks to high-level pressure from the U.S. State Department. The former oligarch turned political opponent is now one of the most prominent among many victims of Uzbekistan’s systemic corruption. Umarov has joined with other civil society voices to call for the U.S. government to use assets its frozen in Karimova’s hidden accounts as leverage to push for the reforms he sought before he was sent to prison — and as a resource to help repair some of the lives that have been broken.
Little has changed
In rare cases when someone makes a mistake, an informant defects, or a political rivalry spills over, a window of opportunity to untangle the web of bribery and racketeering briefly opens. That’s what happened in Uzbekistan’s telecommunications sector last year.
From what Lasslett has learned through sources in Uzbekistan, Gulnara Karimova, once the self-appointed heiress to Uzbekistan’s criminal state, fell out with a former confidante and business associate, who fled to Russia and found refuge there with a powerful oligarch. Reports began to surface about Karimova’s illicit business empire, including the various sham companies she set up to extract bribes from foreign investors, complete with so-called “advisory services” that cut and pasted reports from Wikipedia. Swiss authorities detained additional associates of Karimova’s and “the deck of cards fell,” Lasslett said.
“It would be nice to say that there was a noble reason for why this all came about,” he said. “In fact it was very much linked to internal rivalry that went awry.”
In 2014 reports emerged that Karimova had been placed under house arrest. Subsequent rumors circulated that she had been poisoned and might be dead. In Sept. 2016 Islam Karimov, her father, died after 25 years as Uzbekistan’s president. Former Prime Minister Shavkat Mirziyoyev assumed the presidency.
This whole idea of fighting corruption needs to reach beyond governments and must really, deeply involve civil society, because who else is going to hold the governments responsible? Themselves?”— Brian Campbell, U.S.-based attorney
Last month Swiss prosecutors reported meeting with and questioning Karimova in Tashkent, where they said she was indeed being held under house arrest. Karimova has complained that she has never been officially tried, charged and convicted of a crime.
“The whereabouts of Gulnara Karimova are very much linked to this case. If the government of Uzbekistan does not arrest her and try her with due process for these corruption charges, it’s going to be hard for them to argue that they should get any of this money back ever,” said Brian Campbell, a U.S.-based attorney who has worked to ensure the Uzbek activists’ views are represented in the negotiations between the U.S. Justice Department and the government of Uzbekistan.
The money the U.S. Justice Department now seeks for forfeiture is an accumulation of bribes paid to Karimova by the major telecommunications firms TeliaSonera, Vimpelcom and MTS. Normally, money seized from a corruption case would be returned to the state. But in this case, it’s hard to argue Uzbekistan’s government was really a victim.
Activists say the new president has done little to confront the systemic corruption that props up the state’s control of wealth and power. Although he has signed a new anti-corruption law aimed at “raising legal awareness” of corruption, some told Devex they are skeptical that it will shake up an entrenched system of graft.
“The system which existed during the Karimov time hasn’t changed at all,” said Umida Niyazova, director of the Uzbek-German Forum for Human Rights. She left Uzbekistan for Berlin after serving two months of a seven-year prison sentence for allegedly distributing religious extremist materials. Niyazova said they were human rights reports.
Arguing it has dealt with those involved in this scandal, the Uzbek government now wants repatriated the roughly $1 billion sitting in European bank accounts formerly controlled by Karimova. Uzbek activists, however, say in their letter to Lynch the state has done little to relieve concerns that the money wouldn’t be absorbed back into a corrupt system.
“A really surprising thing about that letter is that the Uzbek civil society would rather the money go back to the treasury of any government, than go back to their own government,” Campbell said.
BOTA Foundation 2.0?
In their letter to the attorney general, the activists proposed a different solution, pointing to an effort undertaken in Kazakhstan a decade ago.
In 2007 the governments of Kazakhstan, the United States and Switzerland — along with the World Bank — came to an agreement over how to deal with $84 million in seized bribery payments in the country’s oil sector. They created the BOTA Foundation, the world’s first endowment to channel recovered bribes to Kazakhs living in poverty — those who suffer most from corruption.
BOTA’s funds were directed to child welfare organizations and projects. It operated independently of the Kazakh government with oversight from a seven-person board and progress reports delivered to the World Bank. It was considered a model that other asset restitution cases might follow.
The Uzbek proposal would help overcome what advocates see as a limitation in the patchwork of laws that deal with international corruption — of which the U.S. Foreign Corrupt Practices Act is one of the most effective. Together, that legal body mostly ignores people who’ve suffered human rights violations as a result of systemic corruption and instead defines victims as those involved in a specific financial transaction who have lost money or suffered financial harm.
“Our corruption law still only looks at life from a view of financial transactions, and it’s not really well designed for victims like the people I’m working with who have suffered human rights violations as a result of this systemic corruption,” Campbell said.
“That’s why you need the civil society feedback. This whole idea of fighting corruption needs to reach beyond governments and must really, deeply involve civil society, because who else is going to hold the governments responsible? Themselves?” he added.
The Uzbekistan case is more complicated than what the BOTA Foundation was designed to deal with — and with 10 times as much money at stake. For one thing, Uzbekistan’s independent civil society has been decimated. Between 2004 and 2007, the government forced international organizations out of the country. Those local organizations that remain do so largely under the government’s control.
“It’s very hard to see how the money could be distributed on the ground, because there’s no independent civil society. There are no NGOs. There are no people who could actually do that without their activities being monitored and controlled by the government,” Lasslett said.
Activists like Niyazova see the creation of a trust fund as a potential incentive to push the government to adopt reforms that might create more space for civil society programs to be implemented. Only then would the money actually start to flow.
“The trust’s assets could be fully unfrozen when Uzbekistan develops the appropriate conditions for using these funds to benefit all citizens” and demonstrates the “political will” to accept the trust fund solution, the letter reads. Those conditions would include recognizing the right to free speech, liberalizing the country’s currency policy, and allowing for the accreditation of international NGOs in Uzbekistan, the activists write.
“This money should be spent for programs which will [benefit] the people of Uzbekistan, but without intervention by the Uzbek government,” she said.
President Mirziyoyev is saying the right things, Niyazova said, including signing a law on combatting corruption. But this kind of rhetoric rarely amounts to real change in Uzbekistan, Niyazova added.
Political dynamics in the U.S. have shifted too, and now the Trump administration — and its Justice Department led by newly confirmed Attorney General Jeff Sessions — will have to weigh political, diplomatic and human rights concerns as they decide whether their priorities lie with Uzbekistan’s victims, or cooperation with the Central Asian state’s government — or even with absorbing the seized assets into the U.S. Treasury, which would be within their rights to do if the seizure is upheld.
“This is a government-to-government issue in a global world of national sovereignty. So we worry about politics and diplomacy overtaking law and policy,” Campbell said.
UPDATE: This article has been changed to reflect that Uzbekistan's population is 30 million.
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