Europe & Central Asia
Kazakhstan risk report
Companies report corruption as the number one constraint for doing business in Kazakhstan. Corruption is rampant throughout the country's political circles, and networks of patronage and clientelism negatively affect the country’s business environment. Furthermore, challenging bureaucracy and vague legislation restrict foreign investment. Navigating the public administration is also challenging for businesses, as petty corruption is endemic. Facilitation payments and bribery are illegal in the public and the private sector according to the country's Criminal Code, but the state bodies that are responsible for combating corruption are ineffective, unreliable, and fail to hold high-level officials responsible for corruption, abuses of office, and conflicts of interest. A weak judicial system further compromises Kazakhstan’s otherwise extensive legal framework for dealing with corruption.
Judicial system Very high risk
Corruption is entrenched within the Kazakhstani judicial system. Bribes and irregular payments are often exchanged in order to obtain favorable court decisions (GCR 2015-2016). Corruption is present at every stage of judicial processes, and civil courts are perceived as untrustworthy (HRR 2015). The courts are controlled by the interests of the ruling elite (NiT 2016). Accordingly, public trust in the impartiality of the judicial system is low, and Kazakhstani citizens generally hold no expectations that justice will be dispensed professionally in court proceedings (NiT 2014). Recruitment is also plagued by corruption, and becoming a judge requires giving bribes to high-level officials and court administrators (BTI 2016). Almost two-thirds of citizens perceive the judiciary to be corrupt, thus ranking it as the second most corrupt institution in Kazakhstan (GCB 2013).
Companies perceive the courts to perform poorly in regards to the settlement of commercial disputes and challenging government regulations (GCR 2015-2016). Likewise, judicial outcomes are easily influenced due to a lack of judicial independence (ICS 2016). Companies have expressed reluctance in finding recourse in foreign arbitration, due to fear of damaging relations with the government (ICS 2015). In one case, one company did not receive the anticipated relief, despite winning a dispute against the government of Kazakhstan in court (ICS 2015). Since the government decides how arbitrator's decisions are to be implemented (ICS 2015). Kazakhstan is a member of the International Centre for Settlement of Investment Disputes (ICSID), and is a signatory to the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
In 2015, a judge from Taraz Court No. 2, as well as an attorney, were sentenced to four years in prison on charges of attempted fraud and aiding and abetting fraud respectively. The judge had allegedly demanded USD 740 in bribes in return for illegal assistance in a case (HRR 2015).
Police Very high risk
Corruption within the police force remains a serious problem in Kazakhstan, and presents high risks for business. Two-thirds of households perceive the police to be corrupt, ranking it as the most corrupt institution in the country (GCB 2013). The government undertook initiatives to prosecute law enforcement officials guilty of corruption; however, impunity in the police is still a problem (HRR 2015). Companies report that the Kazakhstani police cannot be consistently relied upon (GCR 2015-2016).
Public services Very high risk
Companies dealing with public services in Kazakhstan contend with high corruption risks. Business complain of high-levels of corruption in licensing (ICS 2015). Corruption is also ranked by businesses as the main obstacle to registering companies, and to their subsequent growth and development (BTI 2016). Companies also give bribes or other irregular payments when applying for public utilities (GCR 2015-2016). More than a quarter of companies expect to give gifts to obtain a water connection, while more than a third expect to give gifts when getting an electrical connection (ES 2013). Generally, more than two in every ten companies expect to give gifts to officials to 'get things done' (ES 2013). Companies complain about the inconsistent application of laws and regulations as a means for officials to extort bribes (ICS 2016). It is also reported that the government uses at times bureaucratic stalling tactics to pressure companies into giving up contractual concessions in return for services (licenses, permits, etc.) that companies are otherwise entitled to (ICS 2015). Starting a business in Kazakhstan is less time-consuming than the regional average; taking 5 days and requiring 4 procedures (DB 2016).
On a more positive note, Kazakhstan has been cited as one of the top performing countries in the Asian region regarding improvements in e- governance (UN 2014). The Electronic Government of the Republic of Kazakhstan web portal is a useful entrance point for companies, and provides information on business planning, starting and liquidating a company, taxes and licensing, among other services. Online services decrease direct interaction between officials and companies, and thus diminishes the risks of corruption, presenting a competitive advantage for the country.
Land administration Very high risk
Corruption in the land sector is rampant, and companies contend with high risks when operating in this sector. Almost three in every ten companies expect to offer gifts to officials to obtain a construction license (ES 2013). The process of registering property in Kazakhstan has eased in the past years, and is now significantly less time-consuming, requiring 3 procedures and taking on average 4,5 days (DB 2016). Property rights in Kazakhstan are well defined; however, private and international rights are not secured in practice (BTI 2016). Businesses also do not perceive property rights to be adequately protected (GCR 2015-2016).
Tax administration Very high risk
The tax administration carries a high risk of corruption. Almost one quarter of all companies stated that they expect to give gifts in meetings with tax officials (ES 2013). The same applies to dealing with annual tax payments where bribes and irregular payments are often exchanged (GCR 2015-2016). Furthermore, companies complain about arbitrary tax inspections (ICS 2016). Paying taxes in Kazakhstan is less time-consuming and less costly than the regional average (DB 2016).
Customs administration Very high risk
The customs administration carries a high risk of corruption for business. The border administration lacks transparency, and irregular payments and bribes are widespread when trading across the borders of Kazakhstan (GETR 2014). Furthermore, almost three in ten companies expects to give gifts to officials to obtain an import license (ES 2013). Business executives report that exporting and importing procedures are burdensome, making the process vulnerable to corruption, and demands for bribes by customs officials (GCR 2015-2016). Customs regulations are also complicated and lack transparency (Doing Business in Kazakhstan 2016).
Customs procedures related to exports are significantly more time-consuming and costly compared to regional averages, unlike importing which does not incur any cost for companies. Importing only requires six procedures for border compliance and documentary compliance respectively (DB 2016).
Public procurement Very high risk
Public procurement carries a high risk of corruption for business investing in Kazakhstan. Bribes and irregular payments are widespread in the process of awarding contracts and licenses (GCR 2015-2016). Likewise, two in every ten companies expect to give gifts to procurement officials (ES 2013). Companies report that public funds are often diverted to individuals or companies due to corruption (GCR 2015-2016). Large funds have reportedly been embezzled through fraudulent public contracts (BTI 2016). Companies find favoritism to be widespread among procurement officials (GCR 2015-2016). Government regulations allow unfair benefits for domestic companies, and for state intervention in foreign companies’ operations related to public procurement (ICS 2016).
Kazakhstan's largest national holding company, Samruk-Kazyna, which manages the state's assets in oil, gas, energy, transportation, financial and innovation sectors - is provided with special status and rights by President Nazarbayev. It is exempt from government procurement procedures, and thereby endowed with the right to conclude large transactions between members of its holdings without public notification (ICS 2016). Moreover, the government can transfer state-owned property to Samruk-Kazyna without any tender process (ICS 2016).
In June 2015, senior officials involved in the organization of the EXPO-2017 international exhibition were arrested on charges of embezzlement of USD millions of state funds (NiT 2016). Serik Akhmetov, the former prime minister, was sentenced to ten years in prison for embezzlement (NiT 2016). His sentence was reduced to eight years after an appeal in March 2016; in which, he had pleaded guilty to taking bribes worth USD 2,4 million in return to secure a firm, run by his brother Berik Akhmetov and his son was awarded lucrative contracts (Eurasia Net, Mar. 2016). The reduced sentence also comes after Akhmetov’s relatives had paid USD 15 million of the embezzled funds (Eurasia Net, Mar. 2016). Nonetheless, perceptions of inter-elite factionalism motivating the trials are widespread (NiT 2016). Companies are recommended to use a specialized public procurement due diligence tool to mitigate the corruption risks associated with public procurement in Kazakhstan.
Natural resources Very high risk
Kazakhstan enjoys vast oil and mineral resources; however, the industries are plagued by high-levels of corruption (NiT 2016). Kazakhstan’s public officials often impose arbitrary environmental fines on foreign companies (ICS 2016). Fines are issued to generate additional revenue for the government regardless of whether environmental regulations were breached or not, thereby increasing the cost of doing business in Kazakhstan (ICS 2016). Kazakhstan achieved compliance with the Extractive Industry Transparency Initiative requirements, and subsequently gained membership in October 2013.
The legal anti-corruption framework in Kazakhstan is in place; nonetheless, the government did not implement laws to fight corruption effectively (HRR 2015). The Criminal Code of Kazakhstan criminalizes active and passive bribery, attempted corruption, extortion, money laundering, abuse of office, and bribe facilitation by third parties. The acceptance of a bribe on behalf of a third party and facilitation payments are prohibited by the Law on the Fight Against Corruption, which also includes provisions on compulsory asset declarations by state officials and broadens the definition of corruption crimes to include fraud committed by government officials. A lifetime ban is imposed on employment in the civil service for individuals convicted of corruption including a forfeiture of rank, title, grade and state awards (ICS 2016). Probation is not allowed for corruption crimes and the statute of limitations is not applied to persons charged with corruption (ICS 2016). Bribery of foreign officials is criminalized through the ratification of the United Nations Convention against Corruption. The Law on Civil Service and the Law on the Fight Against Corruption require state officials to report conflicts of interest, contains special penalties for failing to report corruption cases and provides protection for whistleblowers (ICS 2014). However, there is no mechanism in place to deal with these conflicts when they arise (OECD, Oct. 2014). The law extends the definition of 'government official' to managers of companies in which the government holds more than a 35% stake (ICS 2014). Presidential decrees stipulate for regular wage increases for civil servants, a transparent hiring system, and the compulsory disclosure of public servants’ salaries and their expenditures (ICS 2015).
Despite the numerous provisions, public officials continue to engage in corruption with impunity (HRR 2015). Corruption charges have only been pressed against high-ranking officials who fall out of favor with the ruling elite or challenge President Nazarbayev’s authority (BTI 2016).
Freedoms of speech and press are protected by the Constitution, but these rights are not protected in practice (HRR 2015). The government limits freedom of expression, and exercises control over Kazakhstan’s media through harassment, licensing regulation, internet restrictions, and criminal and administrative penalties (HRR 2015). Libel and defamation are criminalized in Kazakhstan, and increased penalties for defamation have contributed to self-censorship among journalists (FotP 2015). Journalists face harassment and intimidation, and the government closed down the few independent media outlets remaining in the country (FitW 2015). Vaguely formulated provisions in the country's communication laws give the prosecutor the authority to shut down websites and communication networks without a court order (FotP 2015). Major media outlets are wholly or partly owned by the state or persons close to the president, and media ownership in general in Kazakhstan lacks transparency (FotP 2015, HRR 2015). In June 2016, a journalist from an independent news website was fined USD 100,000 as a result of a libel suit that was filed by the Kazakhstani private bank Kazkommertsbank over a report the website had published on corruption in the construction sector in the city of Almaty (NiT 2016). The law mandates the government to provide the public with information; nonetheless, authorities did not properly fulfill citizens' requests (HRR 2015). The media environment is described as 'not free' (FotP 2015).
Civil society in Kazakhstan is not well developed, and its freedom to operate is limited in practice (BTI 2016, HRR 2015). Unregistered civil society organizations are not allowed to operate in the country (NiT 2016). Kazakh legislation prohibits foreign-funded NGOs to pursue political goals (HRR 2015). Several laws have strengthened regulations controlling civil society, making it easier for the government to monitor opponents, and more difficult for individuals to assemble and for NGOs to register (NiT 2016). Despite that, the government has accepted some NGO's recommendations, these were only technical and not substantive (HRR 2015). In general, government officials have been uncooperative with civil society's views (HRR 2015). International and local human rights NGOs reported that the government monitored their activities and activists have been the victims of harassment (HRR 2015).
- The World Bank & IFC: Doing Business 2016.
- Freedom House: Nations in Transit - Kazakhstan 2016.
- US Department of State: Investment Climate Statement - Kazakhstan 2016.
- The Bertelsmann Foundation: Transformation Index - Kazakhstan 2016.
- US Embassy Kazakhstan: Doing Business in Kazakhstan 2016.
- World Economic Forum: The Global Competitiveness Report 2015-2016.
- Eurasia Net: 'Kazakhstan: Ex-PM's Graft Sentence Cut on Appeal', 16 March 2016.
- US Department of State: Investment Climate Statement - Kazakhstan 2015.
- US Department of State: Human Rights Practices Report - Kazakhstan 2015.
- Freedom House: Freedom of the Press - Kazakhstan 2015.
- Freedom House: Freedom in the World - Kazakhstan 2015.
- US Department of State: Investment Climate Statement - Kazakhstan 2014.
- Freedom House: Nations in Transit - Kazakhstan 2014.
- United Nations: E-Government Survey 2014.
- OECD: Anti-Corruption Reforms in Kazakhstan, October 2014.
- World Economic Forum: Global Enabling Trade Report 2014.
- The World Bank and IFC: Enterprise Surveys 2013.
- Transparency International: Global Corruption Barometer 2013.
- Ministry of Justice of the Republic of Kazakhstan: Sectoral Program of Anti-Corruption in the Republic of Kazakhstan for 2011 - 2015.
- Eurasia Daily Monitor: 'Kazakhstan Steps up Anti-Corruption Measures, but Problems Remain', 27 November 2013.