A Kazakhstan Power Struggle Shakes the Austrian Banking Community

Just in case the RZB money laundering scandal with Russia weren’t enough drama for the ethically upright Austrians, another mess from a foreign country has landed at their doorstep. Rakhat Aliyev, the son-in-law of the president of Kazakhstan, has been arrested in Austria in connection with a kidnapping scandal involving Nurbank, a bank in which he owns a majority share (coincidentally, RZB is one of the leading bidders to take over the bank). Ever since the charges were issued against Aliyev, who fell out with his father-in-law some time ago and is now known as a fierce critic, two news websites he owns have been blocked by the Nazarbayev government. Now released on bail and called a dissident by some and a crook by others, Aliyev is desperately appealing to the Austrian authorities to avoid extradition to Kazakhstan.

When Kazakh President Nursultan Nazarbayev waived term limits a few weeks ago, the Economist crowned him the “Kazakhbashi”

To say that the Aliyev case is complex is a vast understatement. As an indication of the labyrinthine power struggle we are dealing with here, STRATFOR recently published a breakdown of the family feud (emphasis mine):

Nazarbayev has cracked down on most of the opposition in Kazakhstan during his 16 years as president. He has set up four main groups in his inner circle to control the largest influential sectors in the country (and to balance each other in the process). Most of the four groups are either made up of family or clan members — hence Nazarbayev’s reputation for creating a family dynasty in Kazakhstan. The controlling players are: * Nazarbayev’s eldest daughter Darigha and her husband (Aliyev), who control one political faction and the media; * Nazarbayev’s second daughter Dinara and her husband Timur Kulibayev, who are in charge of the other large political faction and the government oversight of Kazakhstan’s energy wealth; * Nazarbayev’s longtime friend and clansman Nurzhan Subkhanberdin, who oversees the country’s financial sector; * The one player with no family ties to the president, the Eurasia Group (not to be confused with the international consulting firm of the same name). This group is the connection between foreign energy players and the government. The Eurasia Group is three non-Kazakh oligarchs that took control of many key industries — such as metals and energy — in Kazakhstan at the fall of the Soviet Union. The group then created lucrative relationships with foreign companies — like the United States’ Chevron Corp. and ExxonMobil — to persuade them to enter Kazakhstan. The Eurasia Group also has personal and political ties to the Kremlin.

Rakhat Aliyev: “Austria must not turn me over to a system where my life and the lives of my family are endangered.”

… Of all the headlines Aliyev has made, this was the first in which he challenged Nazarbayev’s position. Days later, Nazarbayev passed a law that would give him unlimited presidential terms, solidifying him as president for life. Aliyev then blasted his father-in-law, calling the move a “retreat to totalitarian Soviet past.” This was the break point for Nazarbayev, who issued an international warrant within hours. Aliyev was arrested and charged with the 2005-2006 murders in Kazakhstan. Since Aliyev has immunity from such charges, the order could only have come from Nazarbayev himself. Aliyev is now out on bail in Austria. He has appealed to the Austrian government not to extradite him back to Kazakhstan, saying he will be killed upon returning. The timing of Nazarbayev’s order for Aliyev’s arrest and the timing of Aliyev’s challenge to his father-in-law’s power have not escaped anyone. Many are wondering if this is the end for Aliyev, or if Nazarbayev will accept him as the prodigal son-in-law once again. Then again, Aliyev could try to oppose Nazarbayev’s authority. What happens next depends on Nazarbayev’s eldest daughter and Aliyev’s wife, Darigha. She has long stood by her husband, writing infamous articles in his defense in the past and blasting other Kazakh power players. But this situation is very different. Her future is at risk and her loyalties to her father and her husband are being tested. Nazarbayev has already shut down Darigha’s media empire, closing some of Kazakhstan’s largest Internet sites, newspapers and television and radio stations. Without media to voice her usual protests, Darigha is remaining quiet for now — which leads to further confusion on where her loyalties lie.

Truly material for fantastic fiction, as blogger Bonnie Boyd has pointed out. She has been the first to really get the ball rolling on investigating the Aliyev banking ties story, and her post is a must read:

But there’s some bad stuff going down in the Austrian financial community at the moment, and Raiffeisen Zentralbank (RZB) is smack dab in the middle of it. Austria is a small state with over 1,000 financial institutions–a financial nexus that needs both foreign capital to come in, and to develop customer niches in foreign locations. Raiffeisen began about 1864 as a community credit organization, and its central bank is owned more or less by its branches, rather than the other way around. Raiffeisen Capital, however, is fully owned by Raffeisen: that particular division of RZB is expanding, and wants to continue to expand, into former Soviet states. They have a significant presence in Russia. The Russian connection is currently under investigation for money laundering conspiracies with Russia’s Diskont Bank. The U.S. is currently investigating RZB in connection with money laundering for RosUkrEnergo, a holding company which makes money off of Russian pipelines on Ukrainian soil. Fifty percent of RosUkrEnergo is owned by undisclosed parties and administered by the Raiffeisen Bank. As of May 22, the state of Ukraine owes RosUkrEnergo USD 400 million. The other 50% is owned by Gazprombank, which means that Ukraine owes Gazprom 200 million. On May 25, RZB denied all allegations of money-laundering, saying that it is an attack on the largest non-Russian bank within Russia’s borders. This certainly fits other recent Russian takeover events, such as the threats to TNK-BP, Sakhalin Island projects, the Caspian Pipeline Consortium, and many others.

Adding to this thread, ace Central Asia blogger Joshua Foust at Registan breaks down the critical questions we are left with (again, emphasis mine):

* Why did Aliyev kidnap executives at a bank he mostly controls? * Did Austria deny his asylum request so his ownership stake can be canceled and the two Austrian banks can buy majority stakes in Nurbank? * What role do the Russian and Ukrainian gas companies have to play in the motivations of the Austrian banks? * What other laws may have been broken by the Austrian banks in their takeover bid for Nurbank?