Kazakhstan launches Criminal Case against arbitration fraudsters, after providing ‘credible’ evidence of fraud’ to halt $531million enforcement

Kazakhstan launches Criminal Case against arbitration fraudsters, after providing ‘credible’ evidence of fraud’ to halt $531million enforcement

The Republic of Kazakhstan has filed a criminal complaint against two Moldovan nationals it accuses of a multi-million-dollar fraud, as Belgium becomes the latest frontline in an attempt to enforce an arbitration judgment that Kazakhstan says is founded in fraud.


The fraud unravelled after a complex legal investigation by the Ministry of Justice of the Republic of Kazakhstan revealed that the Moldovans – Anatolie and Gabriel Stati, and their companies Ascom Group S.A. and Terra Raf Trans Traiding Ltd (“Statis”) had misled the Swedish Court of Arbitration in order to inflate a claim against Kazakhstan resulting in an award of $531million and a slew of civil enforcement actions against the country across multiple jurisdictions.


Now, for the first time, a Belgian Court (the Court of Appeal of Brussels) will rule on crucial evidence resulting from correspondence issued by the Statis’ auditing firm KPMG, which was filed earlier this year. In a letter to Kazakhstan dated 21st August 2019, KPMG Audit LLC (“KPMG”) stated that it had taken the decision to invalidate all the audit reports it had issued relating to the Statis’ financial statements for operations in the Republic of Kazakhstan. This included eighteen audit reports covering three years of financial statements. KPMG reached this decision after reviewing evidence that the Statis had intentionally made material misrepresentations to KPMG about a number of transactions between the Statis’ companies and a British company called Perkwood Investments Ltd (“Perkwood”). Perkwood had been presented as an unrelated and independent company, but in fact was owned and controlled by the Statis. Perkwood was a key vehicle in the inflation of the Statis’ claim against Kazakhstan.


The evidentiary importance of KPMG’s decision and its impact on the arbitral award obtained by the Statis (the “Award”) has been confirmed by internationally renowned experts.


Prof. George Bermann, from the University of Columbia, New York, recently noted that the KPMG Correspondence confirms the existence of credible evidence of fraud, and that “[t]he actions taken by KPMG undermine the confidence not only in the reliability of the Stati Parties‟ financial information, but also in anything derived from or based on that information, including written and oral testimony, expert opinions and statements of counsel. This evidently affected the ECT Arbitration and the outcome as a whole, including questions of jurisdiction, liability and damages”.

George Bermann's Legal Opinion


Prof. Christopher Schreuer, a leading expert in international investment arbitration, observes that: “[i]n the present case, the conclusion seems inevitable that the KPMG Correspondence would have had a material impact on the ECT Arbitration and the Award. The unusual and serious step of auditors withdrawing their audits, because their client has provided them with false information, renders the entire financial information relating to the investment unreliable and thus deprives the Award providing compensation for losses relating to such investment of any reliable basis. (...) The evidence that has now become available (...) clearly demonstrates the Statis Parties‟ illicit conduct and bad faith”.

Christoph Schreuer's Legal Opinion


The independent audit company PricewaterhouseCoopers (“PwC”) also highlighted the unusual and serious character of KPMG’s decision to withdraw its audit reports: “[t]he effective „withdrawal‟ of an audit opinion is a last resort by an auditor and only arises in rare circumstances, including for example when management can provide no explanation for repeated, material false statements by management to the auditor and/or when management can provide no explanation for material misstatements in the accounts and resulting financial statements”.

Report of PricewaterhouseCoopers LLP


PwC further confirmed that the Statis’ misrepresentations and actions demonstrated the lack of integrity and credibility of the Statis and raised many red flags in terms of fraud and money laundering.


The Minister of Justice of the Republic of Kazakhstan, Marat Beketayev, said: “The Statis have tried everything to prevent a Court from considering the KPMG Correspondence. They claimed it‟s not relevant. Too late. They even stopped a case they had begun in England. But these efforts have failed. The Court of Appeal of Brussels ruled that the KPMG Correspondence is “new and relevant” to the case as it clearly relates to the quality of the arbitral Award.”


Granting Kazakhstan’s application to introduce the KPMG Correspondence to the case, The Court of Appeal of Brussels then fixed a hearing in September and October 2020. Kazakhstan also lodged an appeal on 17th February 2020 before the same Court against the decision of the Court of First Instance in the Exequatur proceedings launched by the Statis to enforce the arbitral award in Belgium. In the Notice of Appeal, the Republic of Kazakhstan explains how the KPMG Correspondence confirms the existence of the Stati fraud and shows that the Court of First Instance was misled by the Statis. The Republic also informed the Belgian court about a criminal case initiated by the Republic against the Statis that pertains to their criminal activities before the Luxembourg Courts.


Minister of Justice, Marat Beketayev, says the Belgian decision means, for the first time, the fraud allegations will be considered with the benefit of seeing the KPMG Correspondence: “By filing a criminal complaint in Luxembourg and by pursing this matter in Belgium, the Republic of Kazakhstan continues its quest for justice in the very jurisdictions selected by the Statis themselves. The false statements and misrepresentations of the Statis to KPMG and to the Arbitration cannot be tolerated. Through its actions in Belgium, Luxembourg and other countries to ensure this matter is heard, the Republic of Kazakhstan reaffirms its unconditional commitment to the rule of law and to protect of the interests of the Kazakh people”.