Timeline of Events
Dates, facts, and evidence of the fraud perpetrated against the Republic of Kazakhstan.
The Statis begin establishing their presence in Kazakhstan by acquiring local companies KPM and TNG.
11 January 2006
Azalia, a company affiliated with the Statis, signs a bogus agreement with another Stati-affiliated company called Perkwood to purchase equipment for the construction of a Liquified Petroleum Gas (LPG) plant in Kazakhstan.
31 January 2006
Azalia and Ascom, a holding company 100% owned by Anatolie Stati, sign a €32 million contract with an independent third party Tractabel Gas Engineering (TGE) for the supply by TGE of the same LPG plant equipment that was supposed to be supplied by Azalia to Perkwood under the Agreement dated 11 January 2006.
17 February 2006
Perkwood sells the plant equipment acquired from TGE to TNG for $115 million.
27 June 2006
Ascom signs a joint venture agreement with Vitol for the construction of the LPG plant.
20 December 2006
Tristan, a special purpose vehicle, 100% owned by Anatolie Stati and setup for the purpose of financing the Stati operations in Kazakhstan, issues the first tranche of Tristan Notes worth $300 million.
The Tristan Notes are two tranches of notes, issued by the Statis through Tristan, worth $300 million and $120 million, respectively, which were sold to noteholders on or around 20 December 2006 and 7 June 2007. The stated purpose of the Tristan Notes, which were guaranteed by the assets of KPM and TNG, was to finance the Kazakhstani operations of those companies. However, the Statis used the funds they obtained from selling the Tristan Notes for purposes other than the operations of TNG and KPM.
7 June 2007
The second tranche of the Tristan Notes worth $120 million is issued.
The Statis initiate “Project Zenith”, a scheme to sell KPM, TNG, and the LPG plant at an inflated price.
The Russian investment bank, Renaissance Capital, was hired as a consultant to assist in the sale of the Statis assets in Kazakhstan – KPM, TNG and the LPG plant, which was referred to as “Project Zenith” in internal company documents. Falling oil prices in 2008 and declining revenues from KPM and TNG’s oil and gas production meant that by that time, the Statis assets were struggling.
29 August 2008
KPMG Tax & Advisory LLP, prepares a Vendor Due Diligence (VDD) Report, which states that Perkwood was an independent third party, thereby concealing the Statis’ affiliation with the company.
KPMG based the VDD Report upon representations made to it by the Statis, including CFO Artur Lungu. On 31 August 2008, KPMG provided the Statis a draft version of the report that reproduced the Statis’ misrepresentations of the LPG plant’s total construction costs, estimated as of 17 May 2008 as $233 million, of which $193 million had already been invested as of 30 June 2008.
The draft VDD Report specifically affirmed that it included mention of all related parties and related-party transactions. In this respect, the draft report contained four references to Perkwood, each identifying it as a “related party”. However, the final version of the VDD Report – for use by the potential purchasers of KPM, TNG and the LPG plant – identified Perkwood not as a related party, but as an unrelated third party.
The reason why the final version of the VDD Report falsely identified Perkwood as an unrelated third party is that Artur Lungu specifically informed KPMG, in commenting on the draft VDD Report, that Perkwood was not owned or controlled by the Statis and asked KPMG to change all references to Perkwood in the draft from related party to unrelated third party. KPMG complied with these instructions, modifying the final report to affirmatively (and falsely) state that Perkwood was one of the “main third parties” involved in the construction of the LPG plant.
September – October 2008
KMG EP, OMV, KNOC, TPAO, SAFMAR, CNPC, Meridian Petroleum, and Total submit indicative offers for the purchase of KPM, TNG, and the LPG plant.
6 October 2008
President of the Republic of Moldova, Vladimir Voronin, writes a letter to President Nazarbayev of Kazakhstan, stating that Anatolie Stati was using proceeds from Kazakhstan’s mineral resources to invest in areas subject to UN sanctions, including South Sudan.
Ascom Group started petroleum operations on the African continent in 2005 when it signed the first contract with South Sudan, a region of Sudan which became independent in 2011. Anatolie Stati has been accused of concealing profits and funding activities in South Sudan, breaking international sanctions. The Statis repeatedly declined to divulge information on the activities exercised by Ascom in South Sudan.
14 October 2008
At Ascom’s Management Meeting, the company reported a deficit of 250-300 million dollars, mostly caused by the transfer of funds to Stati’s other interests in Kurdistan.
Kazakhstani governmental agencies carry out inspections of KPM and TNG.
In the autumn of 2008, Kazakhstan’s tax and customs authority performed tax inspections of KPM and TNG’s businesses. The tax audits led to the imposition of a residual tax of $62 million on KPM and TNG since it was revealed that the companies had filed incorrect tax returns. Another issue which was the subject of the investigation was the financing of the Statis’ business in Kazakhstan, especially the Statis’ refinancing of previous loans through notes issued by Tristan.
In addition, KPM’s General Manager, Sergey Cornegruta, was charged and sentenced to a term of imprisonment because KPM had operated a “trunk pipeline” without the corresponding license. In addition, KPM was ordered to repay the illegitimate profits which the company had made by operating a trunk pipeline without a license.
Kazakhstan continued to investigate the Statis’ businesses during the autumn of 2009 and the spring of 2010. During these investigations, it was revealed that the Statis had violated Kazakhstani law several times through the companies, KPM and TNG.
During the spring of 2009, the Statis had still not paid their substantial tax debts and the fines they had been ordered to pay, as a consequence of which the Kazakhstani tax authority decided to seize parts of KPM and TNG’s assets and freeze their bank accounts.
30 March 2009
TNG’s Subsoil Use Contract 302 covering the Tabyl Block expires.
Kazakhstan’s Subsoil Use Contracts are designated to regulate, subsoil use and various types of relations arising from the use of subsoil, including subsoil use operations in relation to the various subsoil resources. The Subsoil Use Contracts are granted for a limited time period and under strict conditions regarding the type of activity that can be exercised.
LPG plant construction is halted by the Statis.
Tristan issues $111 million of Tristan Notes.
With TNG and KPM’s finances depreciating as a result of the Statis’ asset stripping and mismanagement, they obtain emergency bridge financing from a group of venture capitalists (The Laren Loan Facility).
The Statis conducted illicit acts using Laren Holdings Ltd., a special purpose vehicle established by the Statis in the British Virgin Islands. Through Laren Holdings the Statis accessed a credit facility for $60 million extended from six lenders at an interest rate of 35% per annum – the “Laren Loan”.
The Statis asserted that “the ‘horrendous’ conditions of the Laren Loan” – the 73% discount to face value and 35% interest rate – were caused by the fact that no other lenders had offered financing on commercial terms, due to Kazakhstan’s conduct.
However, disclosure documents provide direct evidence that the Statis offered deceptive information on the reasons behind the terms of the Laren Loan:
– Ascom itself decided not to proceed with an alternative credit facility that was offered by a recognized financial institution – Credit Suisse.
– The Statis had a financial interest in issuing notes to Laren at a discount of at least 73%, partly due to the fact that Laren was a Stati-controlled company and not an independent entity, as the Statis falsely stated originally.
21 July 2010
KPM’s Subsoil Use Contract 305 for the Borankol field and TNG’s Contract 210 for the Tolkyn field are terminated.
KPM and TNG obtained a limited time permission from Kazakhstan to explore and develop various oil and gas fields in Kazakhstan pursuant to Subsoil Use Contracts prior to their acquisition by the Stati, KPM was awarded a subsoil use contract for the Borankol field on 30 March 1999. TNG was awarded a subsoil use contract for the Tolkyn field on 12 August 1998 and the Tabyl block on 31 July 1998.
26 July 2010
The Statis initiate arbitration proceedings under the Energy Charter Treaty (ECT) against the Republic of Kazakhstan.
The ECT is a multilateral framework for energy cooperation across borders that was signed in December 1994 and entered into legal force in April 1998. Currently there are fifty-three signatories and contracting parties to the Treaty, including Kazakhstan. The treaty focuses on:
– Protecting bona fide foreign investment, based on the extension of national treatment and against non-commercial risks;
– Providing for reliable cross-border energy transit flows through pipelines, grids, and other means of transportation and non-discriminatory conditions for trade in energy materials based on WTO rules;
– Resolving disputes between participating states, and between investors and host states;
– Promoting energy efficiency.
18 May 2011
The Statis file their Statement of Claim.
21 November 2011
Kazakhstan files its Statement of Defence.
17 December 2012
The Statis make an agreement with the Noteholders (The Sharing Agreement), which states that any proceeds collected as a result of an award or settlement against Kazakhstan in the arbitration will be shared between the Statis and the Noteholders.
The Sharing Agreement was signed in case Noteholders were not repaid for the Tristan Notes upon their maturity and/or an event of default, and after some Noteholders became aware that the Statis were involved in fraudulent activities.
19 December 2013
The arbitral tribunal finds in favor of the Statis and orders Kazakhstan to pay them approximately $500 million in compensation.
The arbitral tribunal concluded that Kazakhstan had violated the fair-and-equitable-treatment standard in Article 10 of the ECT. In reaching this conclusion, the tribunal accepted several crucial assertions made by the Statis, including:
– that they were bona fide investors in Kazakhstan through the operations of TNG and KPM, and
– various regulatory investigations and legal actions taken by Kazakhstan with respect to these two companies constituted an unjustified “campaign of harassment.”
The arbitral tribunal awarded the Statis compensation in the sum of $497,685,101.5. This included $199 million for the LPG plant. In making this award, the tribunal again accepted several crucial assertions made by the Statis that:
– the audited financial statements for TNG and KPM were truthful and legitimate, and
– that a $199 million indicative offer obtained by the Statis for the LPG plant from the state-owned entity KMG was a neutral and fair basis on which to value the LPG plant.
According to international law, the arbitral award has to be enforced in national jurisdictions where the claimant intends to collect the award. The respondent is provided with the possibility to challenge the award at this stage.
24 February 2014
The Statis file an application for enforcement of the arbitral award in England.
The Statis began a campaign to enforce the award by applying to various courts around the world to enforce the decision through seizures of Kazakhstan’s assets held abroad.
The Statis obtained an ex parte order granting them permission to enforce the arbitral award in the UK, subject to an application by Kazakhstan to set aside the order.
28 February 2014
The English High Court of Justice recognizes the arbitral award and issues a provisional enforcement order.
19 March 2014
Kazakhstan initiates proceedings to set aside the award before the Svea Court of Appeal in Sweden.
Kazakhstan submitted a statement of claim to the Svea Court of Appeal seeking to set aside the award based on procedural irregularities during the arbitration. At that time, Kazakhstan did not have access to the evidence of the Statis’ fraud which it gradually began discovering after 2015.
1 April 2014
The Statis file an application before the Court of Amsterdam to freeze Kazakhstani state assets.
3 April 2014
The Court of Amsterdam issues a provisional order to freeze $520 million in Kazakhstani state assets.
14 April 2014
The Dutch Minister of Security and Justice issues a notice that the enforcement would be contrary to obligations of the Dutch state under international law for reasons of immunity.
30 September 2014
The Statis file an application for recognition of the arbitral award before the US District Court for the District of Columbia.
27 March 2015
Kazakhstan petitions the US District Court of the Southern District of New York for discovery of documents from the parallel arbitrations with Vitol for use in the then-pending Swedish set aside proceedings.
In early 2015, Kazakhstan learned that the Statis, represented by the same team of lawyers of King & Spalding LLP acting on their behalf in the arbitration, had been engaged in two parallel arbitration proceedings relating to the same LPG plant project. The counterparty in these parallel arbitral proceedings was Vitol, the Statis’ partner in the LPG plant project. The existence of the Vitol arbitrations was not disclosed in the arbitration under the ECT.
The Statis advanced different values and different positions regarding the LPG plant in the Vitol arbitrations than they were at the same time advancing in the arbitration against Kazakhstan under the ECT, and a key witness even gave substantially different versions of testimony.
The documents obtained through discovery allowed Kazakhstan to begin a process of uncovering new evidence of the Statis’ systematic misconduct. These documents disclosed that the Statis in the Vitol arbitrations had submitted reports from different financial experts than they had submitted in the arbitration against Kazakhstan, even though both proceedings were largely contemporaneous, both related to the valuation of the LPG plant and the cost of its construction, and both proceedings were conducted by the same King & Spalding lawyers. More importantly, the amounts allegedly invested in the construction of the LPG plant presented by the Statis and their financial experts in the respective parallel arbitrations were significantly different. Additionally, Kazakhstan learned that Perkwood, that was presented as an independent company previously, was in fact, an “Ascom affiliate.”
22 June 2015
The US District Court grants Kazakhstan’s discovery request. From the obtained documents, Kazakhstan learns that Perkwood is affiliated with the Statis.
27 August 2015
In the course of the English enforcement proceedings, the on-site electrical engineer for Tractebel testifies that Tractebel had supplied the main equipment directly to TNG for an amount of approximately $35 million and had no dealings with Perkwood or ever heard of it.
5 October 2015
After discovering new facts through the US court proceedings, Kazakhstan files a separate claim in the Svea Court of Appeal to invalidate the arbitral award, on the ground that the award contravened Swedish public policy due to the Statis’ commission of fraud on the arbitral tribunal.
Kazakhstan, with the assistance of Latvia’s Office for Prevention of Laundering of Proceeds Derived from Criminal Activity, obtains bank statements and bank account information on Perkwood and Azalia from Rietumu Bank in Latvia.
9 December 2016
The Svea Court of Appeal dismisses Kazakhstan’s petition to set aside the arbitral award.
In its decision, the Svea Court did not rule on the merits of Kazakhstan’s assertion of fraud, but rather determined that, even if the Statis had submitted “false evidence” in the form of witness testimony, witness affidavits and expert reports regarding the scale of the investment costs in the LPG plant, as alleged by Kazakhstan, this did not have a direct or an obvious indirect effect on the award and, therefore, did not come within the “very narrow” scope of Swedish public policy justifying set-aside of an arbitral award.
At no point in its decision did the Svea Court of Appeal pass judgment on the reliability of the KMG indicative offer as evidence in the arbitration. Neither did it make any finding on whether the false financial information provided by the Statis to the arbitral tribunal constituted fraud. Confirming this, the English High Court subsequently held: “No Court has decided the question whether there has been the fraud alleged,” including Sweden and the United States.
Thus, the Svea Court of Appeal did not rule on the merits of Kazakhstan’s fraud allegations. Rather, it determined that those allegations did not provide a basis for setting aside the award under what the court described as the “very narrow” scope of Swedish public policy.
6 June 2017
Justice Knowles of the High Court of Justice of England and Wales rules that there was sufficient prima facie evidence that the Statis had committed fraud against Kazakhstan and had obtained the arbitral award through fraud.
In judgment, Justice Knowles wrote that:
“In my judgment there is the necessary strength of prima facie case that the alleged fraud would have made a difference to the tribunal. And that, in asking the tribunal to rely on the KMG Indicative Bid in circumstances (concealed from the tribunal, as from the bidder) of the alleged fraud, there was a fraud on the tribunal. I am satisfied that the State did not have access before the award to the evidence of the alleged fraud on which it now seeks to rely, and that the evidence of the alleged fraud could not with reasonable diligence have been discovered before the award had the State used reasonable diligence”.
In rejecting a collateral argument made by the Statis, Justice Knowles expressly confirmed that:
“neither the Swedish Court, nor the US Court, nor English Court” has decided “the question whether there has been the fraud alleged.”
The decision clearly establishes the existence of fraud, unless proven otherwise.
27 June 2017
The English High Court of Justice refuses the Statis’ request to appeal Justice Knowles’ decision and orders that the fraud issue is examined in a separate trial.
Justice Knowles ruled that:
“[I] do not consider that the Grounds offer a real prospect of an appellate court altering the conclusion (a) that the question whether the Award was obtained by fraud should be examined at a trial, and (b) that enforcement of the Award (by a judgment of this Court) should not take place without that examination”.
24 August 2017
The Statis apply for recognition of the arbitral award in ex parte proceedings before the President of the District Court of Luxembourg.
The Statis denied Kazakhstan’s fraud allegations, though without explanation or documentation. The Statis again maintained that the Perkwood Agreement was not a sham and that Perkwood performed a legitimate role in construction of the LPG plant, while also repeating their contention that KPMG had access to all accounting records and was aware of Perkwood’s functions. These statements were made despite the enquiries raised in KPMG’s 15 February 2016 Letter – then unknown to Kazakhstan – showing them to be false.
26 September 2017
The Statis file a request for recognition and enforcement of the arbitral award before the Amsterdam Court of Appeal.
23 January 2018
The District Court of Amsterdam issues a judgment lifting the asset freeze on the ground, inter alia, that the Statis had breached their obligation of truthfulness to the court.
26 February 2018
The Statis serve Kazakhstan a notice of discontinuance of the English proceedings, thereby requesting to withdraw their enforcement claim in England.
A notice of discontinuance is used when a party to the legal proceeding decides to “drop the case”. This means that they will not continue pursuing their claims.
The Statis served a notice of discontinuance of the English proceedings three days before an agreed upon revised deadline for disclosure, and without prior warning or explanation. The Statis sought to justify the discontinuance on the grounds that:
– They lacked the resources to proceed to a trial of Kazakhstan’s fraud claim, in particular because their litigation funders had carved out the English proceedings from their funding arrangements;
– The attachment orders they had secured in other jurisdictions meant that they no longer had a practical need to pursue their enforcement of the award in England.
Justice Knowles granted Kazakhstan’s application to set-aside the notice of discontinuance. In rejecting the Statis’ proffered justifications, Justice Knowles stated:
“the real reason for the Notice of Discontinuance is that the [Statis] do not wish to take the risk that the trial may lead to findings against them and in favour of [Kazakhstan].”
3 April 2019
Kazakhstan compels Artur Lungu, who served as CFO of Ascom and was one of the Statis’ key witnesses in the arbitration, to testify under oath under Section 1782 of Title 28 of the United States Code.
During the Lungu Deposition, Artur Lungu testified, that:
– The Stati “Group” of companies was facing a short-term and medium-term liquidity crisis in October 2008, that this was not caused by any action of Kazakhstan, and that Anatolie Stati knew this;
– Anatolie Stati at all times knew that Perkwood was a related party but misrepresented this material fact in the management representation letters issued to KPMG as part of its audit process;
– Each of the financial statements was materially false because it failed to identify Perkwood as a related party and failed to identify TNG transactions with Perkwood in relation to the LPG plant as related party transactions;
– Artur Lungu expressly directed KPMG to change all the references to Perkwood in the VDD Report from that of a related party to that of an independent third party, which KPMG then did.
Kazakhstan, with the assistance of the Prosecution Office of the Republic of Latvia, obtains further data on numerous bank accounts held by the Statis in Rietumu Bank.
The Rietumu Bank Statements revealed that the Statis were affiliated with approximately three dozen shell companies having bank accounts at Rietumu Bank. An analysis of the Rietumu Bank statements by an independent expert revealed that the Statis systematically stripped their Kazakhstani companies, TNG and KPM, of hundreds of millions of dollars using a web of companies to conceal the flow and ultimate location of funds. This new evidence directly contradicted the representations made by the Statis in the arbitration that their Kazakhstani companies were in financial distress because of a “campaign of harassment” undertaken by Kazakhstan.
On the basis of the Rietumu Bank statements, PwC concluded that there exist credible indicators that the Statis have engaged in transnational money laundering operations.
2 July 2019
The English High Court of Justice orders the Statis to pay Kazakhstan £1.3 million in legal costs following their request for withdrawal of their claim in England.
The hearing on Kazakhstan’s costs application took place before Justice Jacobs, but the Statis did not attend. Justice Jacobs handed down his judgment, making various orders as to payment of costs, including an order that the Statis make immediate payment to Kazakhstan in the sum of £1,300,000.00.
19 August 2019
PwC issues a memorandum on the issue of fraud in the case. PwC concludes that the Statis made false representations to auditors in order to mislead them and, ultimately, the arbitral tribunal.
In its first report PwC concluded that “TNG’s auditors were provided with false representations,” and that such “material misstatements and the serious impairment of the integrity of TNG’s management would render [the Financial Statements] unreliable.”
21 August 2019
KPMG withdraws 18 audit reports of KPM, TNG, and Tristan.
KPMG took the rare step of withdrawing all its reports used by the Statis in the various lawsuits, on the basis that these were based on false representations. KPMG also directed the Statis to take steps to prevent further or future reliance on these reports and to inform all recipients of the reports’ withdrawal.
The Statis retained KPMG to audit their financial statements for the years ending on 31 December 2007, 2008, and 2009, as well as their quarterly interim financial statements for those years. KPMG’s audit reports recited that the financial statements were prepared in accordance with the then-applicable International Financial Reporting Standards.
KPMG had issued its audit reports for the Statis on that basis. In reality, the Statis concealed illegitimate construction costs and misrepresented facts relating to the LPG plant.
25 October 2019
Kazakhstan obtain correspondence between KPMG and the Statis between 2016 and 2019, which shows the Statis had refused to share critical information and had misled KPMG (e.g. the Statis failed to disclose to KPMG that Perkwood was controlled by the Statis).
21 January 2020
Prof. George Bermann, a leading expert in the field of international arbitration, issued an opinion stating that “it cannot be doubted that there exist in this case both credible evidence of fraud and a sufficient connection between such fraud and the outcome of the arbitration.”
21 January 2020
Prof. Christoph Schreuer, a leading arbitrator and legal expert, issues a legal opinion on the case, concluding that new evidence which emerged since the arbitral ruling, such as KPMG’s withdrawal of its audit reports, demonstrates that the Statis obtained the arbitral award through fraud.
Prof. Schreuer, opined that the evidence of the Statis’ fraud “would have been critical for the determination of [the Tribunal’s] jurisdiction, the admissibility of the Stati Parties’ claims and the liability of Kazakhstan.”
21 January 2020
In a letter to Kazakhstan, PwC provides an updated assessment of the Statis’ fraud in obtaining the arbitral award.
On the double-billing for the LPG plant equipment through Perkwood, the Statis alleged that a mark-up of around $58 million was not extraordinary. PwC clarifies that no supporting documents were provided by the Statis to support these claims and, furthermore, that it is not plausible that a LPG plant, the principal equipment for which cost approximately $35 million, would attract legitimate costs of transport, insurance and storage at a value of almost triple the price of such equipment.
At the same time, the Statis sought to argue that the difference in price was due to currency fluctuations, because Tractebel was charging for its equipment in Euros, whereas Perkwood and TNG transacted in US Dollars. However, PwC again highlights that the Statis submitted no documents to support this claim. PwC also noted that it does not seem plausible that the tripling of the LPG plant’s cost could have arisen out of a difference in foreign exchange rates.
16 June 2020
Kazakhstan files a lawsuit against Daniel Chapman, Argentem Creek Holdings LLC, Argentem Creek Partners LP, Pathfinder Argentem Creek GP LLC, and ACP I Trading LLC for conspiracy to commit fraud, aiding and abetting wrongful conduct, and unlawful conspiracy under English law.
Daniel Chapman is the founder, Managing Partner, Executive Officer, and Chief Investment Officer of Argentem Creek Partners LP. Daniel Chapman and Argentem Creek Partners uncovered the Statis’ fraudulent schemes in or around July 2012 after conducting their own internal investigation. However, they realized that they could gain financially if they unlawfully joined the Statis’ scheme instead of pursuing legal action of their own.
16 July 2020
Alexander Layton QC provides an expert opinion on Justice Teare’s decision stating that the English decision, in his opinion, prevents the Statis from seeking to enforce the arbitral award against NBK in any other EU jurisdiction.
Alexander Layton QC, an English barrister at Twenty Essex chambers specializing in private international law, cross-border disputes and commercial law, concluded that:
“It is clear from the Merits Judgment and the declarations made pursuant to that judgment, whether viewed alone or in conjunction with the Jurisdiction Judgment, that the debt in respect of the cash deposits held by BNYM is a debt owed by BNYM to the National Bank of Kazakhstan (NBK) and not to the Republic of Kazakhstan (RoK). That was the court’s unequivocal conclusion and it is not confined to the question whether that debt arose purely as a matter of contract law under the GCA or whether additional issues such as sham trust, the piercing of legal personality or abuse of the law might, if they had been pursued at trial, have affected the outcome on the central question, namely the existence or otherwise of a debt owed by BNYM to the RoK. They could have been pursued at trial but were not. As a matter of English law they cannot now be raised afresh, as the non-existence of a debt by the BNYM to the RoK has been definitely and finally determined (subject to any appeal). In my opinion, that preclusive effect, which would prevent any attempt to re-litigate any of those issues in an English court would, as a matter of European law, apply equally in the courts of the Member States of the European Union.”
27 July 2020
Alexander Layton QC provides a legal opinion on the English proceedings, stating that Justice Knowles’ decision constitutes a final and binding conclusion that the Statis committed fraud to win the arbitration.
Alexander Layton QC confirmed that the English High Court, in the June 2017 judgment of Justice Knowles, reached the view that there was sufficient evidence of fraud to warrant a trial of the fraud allegation for the purpose of setting aside an order for enforcement of a foreign arbitral award. Further, he opined that the judgment of Justice Knowles is final and binding, and entitled to res judicata effect with regard to the issues it necessarily decided including that the evidence of fraud was so strong that if examined at trial it would reasonably be expected to be decisive, and, if it remained unanswered, would have that effect.
29 July 2020
PwC conducts a review of how the Statis’s management of TNG and KPM financing. The review concluded that the companies made a number of transactions that had no commercial basis and cannot be explained. It also found that over $150 million in transactions between 2007 to 2009 were not properly disclosed to the companies’ auditors.
29 July 2020
PwC conducts a separate review of the Statis’ management of TNG and KPM, which concludes that significant third party funds and revenues were diverted from KPM and TNG to companies affiliated with the Statis. The review also finds that Statis inflated the costs of purchases from Stati affiliated companies. Finally, the review concludes that the Statis transferred funds from TNG and KPM to pay for “significant apparent personal expenditure and costs of members of the Stati family”.
30 July 2020
Stefan Cassella, a former federal prosecutor (US Department of Justice) and leading asset forfeiture and anti-money laundering expert, issues an opinion stating that the Statis could be prosecuted criminally in Latvia for money laundering offenses involving the various schemes related to their operations in Kazakhstan. Separately, he concludes that the Statis could face criminal prosecution in the US and other jurisdictions where they attempt to enforce the arbitral award.
Stefan Cassella concludes that:
“The Stati Parties could be prosecuted criminally in Latvia for money laundering offenses involving the proceeds of the Tristan Notes scheme, the Sales of Oil and Gas scheme, and the Perkwood scheme, and in the United States and in other jurisdictions for conducting any future financial transaction involving the Award from the Tribunal in the ECT Arbitration.”
23 August 2020
Independent Swedish Arbitrator, Dr. Patrik Schöldström (currently a Judge in the Swedish Court of Appeal), issues an opinion stating that the Statis did not tell the truth to the Swedish Courts and, in doing so, breached their obligations to those courts. As a result, the arbitral award and its enforcement in Sweden violates Swedish public policy because the award is based on fraud.
Dr. Patrik Schöldström concludes that:
“There is credible evidence that the Stati Parties procured the Award by actions and omissions that under Swedish law amount to criminal fraud.” Adding that, “this would fulfil the requirements for criminal fraud under Swedish law, essentially deceit by the Stati Parties from which they have gained at the expense of the RoK.”
17 November 2020
The Brussels Court of Appeal issues a decision declaring the appeal lodged by Kazakhstan against the exequatur decision of the Brussels Court of First Instance admissible and scheduling a procedural calendar for the exchange of written submissions on the other grounds of appeal raised by the RoK.
31 December 2020
Outrider Management LLC, a Tristan noteholder, joins Kazakhstan as a plaintiff in the claim against Daniel Chapman and his co-conspirators.
Outrider Management operates as an investment firm. The company offers investment advisory and portfolio management services. Outrider Management is regulated by the US Security and Exchange Commission and incorporated in the state of California.
8 January 2021
The Supreme Court of Luxembourg rules that the garnishment proceedings in Luxembourg should be stayed until a decision is rendered in the criminal proceedings against the Statis currently underway before the Investigating Judge in Luxembourg.
The Republic of Kazakhstan filed a criminal complaint with a claim for civil damages before a Luxembourg investigating judge against the Stati partners for offences described as:
– Forgery and use of forgeries, respectively attempted forgery and use of forgeries in the sense of Articles 196 and 197 of the Luxembourg Criminal Code.
– Fraud, respectively attempted fraud in the sense of Article 496 of the Criminal Code,
– Money laundering, respectively attempted money laundering in the sense of Article 506-1 of the Criminal Code.
17 January 2021
Professor George A. Bermann issues a second opinion stating that the evidence uncovered since the arbitral award demonstrates that the Statis obtained it through fraud. Professor Bermann further concludes that the Statis took steps to “prevent the courts taking cognizance of the new facts”, and exhibited “systematic misconduct during these court proceedings”.
Professor George A. Bermann concludes that:
“The Statis’ conduct in this case reveals a pervasive lack of integrity and thus falls decisively short of the standards of truthfulness applicable to parties in arbitration and litigation.”
The Statis “present a full-scale and systematic pattern of deception that began at the start of their Kazakh operations and continued through both the Arbitration and the post-Award Proceedings.”
He adds that “The Statis’ fraudulent conduct during the operation of the investment, as well as during the Arbitration itself, was critical to the Tribunal’s finding of causation and liability and its determination of damages.”
17 January 2021
Professor Catherine A. Rogers, a renowned expert in the field of ethics in arbitration, issues an opinion stating that the arbitral tribunal’s ruling was based on fraudulent statements and misrepresentations by the Statis, and that courts should therefore refuse to enforce the award.
Professor Catherine A. Rogers concludes that:
“It is difficult to imagine or innumerate all the ways that the tribunal’s decision-making would have been affected by a determination by the Stati Parties’ own independent professional auditors that their financials were completely unreliable and had been procured through material misstatements or omissions. Suffice it to say that, had these facts surrounding the KPMG withdrawal come to light, they would have significantly altered the scope and nature of the evidence that the Stati Parties could have presented to the tribunal in support of their case. These facts would also have cast serious doubt on numerous substantive financial aspects of the relevant transactions and the Stati Parties’ credibility more generally. In addition, it is also possible that this new evidence would have raised independent concerns that the Stati Parties had engaged in underlying fraud corruption that should preclude them altogether from bringing claims in investment arbitration.”
11 February 2021
The Supreme Court of Luxembourg overturns the judgment of the Court of Appeal dated 19 December 2019, which confirmed the recognition of the arbitral award in Luxembourg.
The Statis filed “emergency” motions in which they falsely claimed that a Kazakhstan diplomatic residence in Washington DC was being used as commercial office space.
5 August 2021
The Statis sent a Notice of Legal Dispute Arising Under the Energy Charter Treaty and Offer of Amicable Settlements to the Ministry of Justice of Kazakhstan and other state agencies of the Republic of Kazakhstan. The Notice was sent to various media outlets in advance and served only five days later officially on the Ministry of Justice of Kazakhstan in an obvious Black PR stunt.
The Notice states that Kazakhstan has “…deliberately flouted its obligation under the ECT to satisfy an arbitral award rendered in favor of the Stati Parties….” and that the alleged purpose of the letter is “…to summarize the nature of the legal dispute and to invite Kazakhstan to resolve the dispute amicably.”
In its answer, the Republic welcomed a new arbitration being filed by the Stati Parties and their law firm under the ECT. The Republic is confident that this would provide the opportunity that it was denied in the prior arbitration — to have the undisputed evidence of the Statis Parties’ fraud, corruption and money laundering examined on the merits by an independent arbitral tribunal.
28 October 2021
The Statis requested permission from a Washington D.C. federal court to withdraw their pending “emergency” motions to seize the Republic of Kazakhstan’s diplomatic property in the U.S. capital. The request came a day before the deadline for the Statis to submit evidence to the federal court.
16 November 2021
The Belgian Court of Appeal overturned a lower court judgment that granted recognition and enforcement of the Statis’ arbitral award in Belgium. The Court determined that the original arbitral tribunal had been misled “because of the Statis’ inaccurate and fraudulent statements and of the fact that they concealed numerous pieces of evidence during the arbitration proceedings.”
Professor Catherine A. Rogers concludes that: The Court of Appeal’s findings regarding the Statis’ fraud are specific and comprehensive. After examining the voluminous evidence filed in the case, the Court held that: “the Statis have committed acts which qualify as fraud and deception.” The Court then held that these fraudulent and deceptive acts “have caused a definitive impact on the arbitral award” and that without these acts, the Award “would not have been rendered in the way that it was.”
In particular, the Court of Appeal held that the following actions by the Statis were false, fraudulent or deceptive:
– The Statis deceived their external auditors KPMG at the time of the establishment of the audit reports on the financial statements of their companies engaged in their project in Kazakhstan — Tristan Oil, KPM and TNG.
– The Statis legitimized their falsified financial statements in the arbitration by relying on the audit reports which have been “withdrawn” in August 2019 by KPMG so that “no faith should be placed on them.”
– The Statis obtained damages in the arbitration on the basis of an indicative offer that they knew was based on the falsified financial statements of their own companies.
– The Statis failed to disclose in the arbitration the true status of the company Perkwood, which the Statis owned but falsely presented during the arbitration as an independent third party being the principal supplier of equipment for their project in Kazakhstan.
– The failure to disclose this information was the result of a purposeful scheme of deceit from the Statis who were manipulating the costs of the construction of the LPG Plant in Kazakhstan, and this omission has now been confirmed by KPMG to be a material misstatement.
– The Statis relied in the arbitration on documents which their former CFO, Mr. Artur Lungu, recently confirmed were materially false, i.e., the financial statements, a KPMG due diligence report and an information memorandum.
– The Statis also insisted in the arbitration on the supposed “reliability” of their financial statements to demonstrate the existence and legality of their investment in Kazakhstan, and that they had been audited by “Big Four” auditing companies, without disclosing that they had been deceived.
18 November 2021
The Swedish Supreme Court ruled that the seizure of the property of the National Fund of the Republic of Kazakhstan in the amount of approximately SEK 720 million in Sweden does not fall under the protection of the doctrine of judicial immunity.
The Swedish Supreme Court reversed a ruling dated 17 June 2020 by the Svea Court of Appeal, which had determined that National Fund assets amounting to approximately SEK 720 million enjoyed immunity from enforcement measures under customary international law. The Supreme Court judgment does not resolve all of the defenses asserted by the Republic of Kazakhstan and the National Bank of Kazakhstan against the Statis’ enforcement efforts. It concerns only one question regarding sovereign immunity as applied to specific activities of the National Bank of Kazakhstan in connection with National Fund.
The case was remanded to the Svea Court of Appeal for further proceedings regarding the other defenses to enforcement asserted by the Republic of Kazakhstan and the National Bank of Kazakhstan.
22 November 2021
The Statis admitted that their $530 million attachment in Belgium must be lifted. The funds of the National Fund held by The Bank of New York Mellon were returned to Kazakhstan in their entirety.
2 December 2021
The Court of Appeal of Luxembourg ruled in favour of Kazakhstan and stayed the Statis’ efforts to recognize and enforce their fraudulent arbitral award. The basis for the stay was the ongoing criminal court proceedings against the Statis in Luxembourg for forgery, fraud and money laundering.
The Court of Appeal agreed with Kazakhstan that if the arbitral award was obtained by the Statis by way of fraud, “the recognition and enforcement of the arbitral award in question would be contrary to public policy, within the meaning of Article V (2) b” of the New York Convention.
In coming to its decision, the Court of Appeal determined that, according to several distinguished experts, the Statis “acted in a fraudulent manner, by knowingly altering the reality in the declarations and documents produced before the arbitration court, and then the national exequatur judge, in order to influence the decisions to be taken.”
24 December 2021
The Supreme Court of the Netherlands invalidated the decision dated 14 July 2020 to recognize the Statis’ arbitral award in the Netherlands and referred the case back to the Amsterdam District Court.
10 February 2022
The US District Court for the Southern District of New York (1) granted Kazakhstan’s motion to remand its claims against Chapman to the New York state court where they were filed; (2) denied Chapman’s motion to dismiss Kazakhstan’s claims without prejudice; (3) denied Chapman’s motion to dismiss Outrider’s claims; and (4) granted Chapman’s motion to compel ICC arbitration of Outrider’s claims.
18 March 2022
Kazakhstan filed an amended complaint with the New York State Supreme Court to continue proceedings against Daniel Chapman, Argentem Creek Holdings LLC, Argentem Creek Partners LP, Pathfinder Argentem Creek GP LLC, and ACP I Trading LLC for conspiracy to commit fraud, aiding and abetting wrongful conduct, and unlawful conspiracy under English law.