Kazakhstan Corruption Report

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).

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).

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.

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).

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).

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 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.

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.