Uzbekistan Corruption Report

Corruption is pervasive within the Uzbek police. Corruption exists in the entire chain of command of the police; bribes are often passed along to senior officers (OSF 2016). The local police often demand irregular payments from drivers and extort bribes from criminal suspects (OSF 2016). There are reports that the police detains people on false charges as an intimidation tactic to prevent individuals from exposing cases of corruption (HRR 2016). Police investigations and detention of prominent business people are presented by the government as part of anti-corruption efforts, but they are more often part of disputes between the elite (OSF 2016). In recent years, corruption in the police force has been fueled by the rise of criminal groups that control the currency exchange market (BTI 2016). One in five businesses reports paying for security (ES 2013).

Corruption and abuse of office are commonplace in Uzbekistan’s public services sector. Individuals routinely pay bribes to officials in order to obtain public services (ICS 2016). Government officials interpret laws inconsistently to extract bribes with impunity (ICS 2016). Local officials often interpret laws to the detriment of private investors, and demand compliance with decrees and instructions that are not publicly available (ICS 2016). Investors express particular concern about the lack of consistent application of the Law on Foreign Investment (ICS 2016). Requirements for licensing, registration, and other permits are frequently amended without notice, creating rent-seeking opportunities for corrupt government functionaries (ICS 2016). Rampant corruption, mismanagement, shortage of financial resources, and a lack of qualifications among bureaucrats have led to an inefficient state administration (BTI 2016).

Starting a business takes fewer procedures and only half the time of the regional average (DB 2017). Likewise, obtaining electricity takes significantly less time than the regional average (DB 2017).

There is a high risk of corruption in Uzbekistan’s land administration. Excessive intervention by local authorities in agricultural policy and expropriations are common problems (BTI 2016). Privately leased lands are allocated from formerly collectively-held lands; the best lands are often allocated to former administration bosses and farmers are often offered bribes to permit the processes (OSF 2016). Most of the investments earmarked for education are directed into the construction of new schools; with the officials representing the companies with the winning bids being the main beneficiaries (BTI 2016). Property rights are defined in the law, but they are not implemented and enforced consistently (BTI 2016). Expropriation is common (BTI 2016) and may be done for a number of reasons including violating legislation and breaching a contract, but also for arbitrary reasons (ICS 2016). Profitable, high-profile foreign enterprises are at greater risk for expropriation (ICS 2016).

Obtaining a construction permit on average takes 23 procedures, significantly more than the regional average (DB 2017). Registering property takes twice as long as the regional average and takes almost twice as many procedures (DB 2017).

The Uzbek tax administration is subject to high levels of corruption. Companies consider Uzbekistan’s tax regulations to be deficient and lacking clear provisions, leading to non-transparent taxation procedures and vague interpretations of laws to the benefit of corrupt officials (OSF 2016). The tax administration is sometimes used by the government against companies, NGOs, and individuals; corrupt tax officials may arbitrarily impose tax liabilities to force a company’s hand into paying bribes (OSF 2016). Tax authorities sometimes seize assets or cut-off funds from companies during dispute resolution in courts and before cases are finalized (ICS 2016). The number of tax payments in a year is almost twice the regional average and more than four times the OECD average (DB 2017). The time required to make the payments is less than the regional average (DB 2017).

Businessman Olim Sulaimanov alleged he was being harassed for bribes worth thousands of dollars by tax officials and reported his story to the foreign press. Following the publication of the case, Sulaimanov allegedly faced harassment from the authorities including Tashkent’s prosecutorial anti-corruption department. Sulaimanov was charged by the prosecutors office for offering a USD 30,000 bribe, the same amount he alleges the tax officials tried to extort from him. He is being held in pre-trial detention as of February 2017 (Eurasianet, Feb. 2017).

Corruption is endemic within Uzbekistan’s customs sector. Companies cite customs restrictions as among the most severe challenges to doing business in Uzbekistan (CCG 2016). Trade across small border posts along the Kyrgyz and Tajik borders is often only possible when paying bribes; these restrictions damage small and medium-sized businesses, but have also led to monopolies to the benefit of some well-connected individuals (OSF 2016). Uzbekistan has very burdensome and complicated import and export regulations (OSF 2016). Under-invoicing in order to avoid paying duties and taxes is common at the Uzbek border (ADB 2014). Oftentimes, customs officials arbitrarily reject foreign import certificates, despite them seemingly conforming with regulations (CCG 2016). The time required and the costs involved to comply with import and export procedures in Uzbekistan is much higher than the regional average (DB 2017).

Several senior employees at Tashkent Province State Customs Committee were arrested on allegations of bribery in October 2014: They are accused of extorting bribes from companies and individuals crossing Uzbekistan’s borders, demanding illegal payments in exchange for appointments to the customs service, and taking part in organized crime (Trend, Oct. 2014). There have not been any reports so far of the case going to trial (OSF 2016). A government official was sentenced to six years in prison in addition to a fine of USD 12,000 for selling exit visas to ISIS recruits (Caravanserai, Aug. 2016).

Corruption is pervasive in Uzbekistan’s public procurement sector. Bribes are often extorted in exchange for lucrative government contracts (ICS 2016). Likewise, foreign investors report frequent bribe requests; those that refuse have had difficulty in sustaining their operations as a result (ICS 2016). Uzbekistan lacks clear regulations on conflicts of interest and does not have a transparent public procurement system in place (BTI 2016). There is not a single approach to public procurement; not all stages of the process have clear rules and requirements, and different bodies wield power over the process (OECD 2015). Uzbekistan’s public procurement is carried out electronically on the Commodities Exchange internet portal, and regulations require open and non-discriminating bidding process for foreign investors. Formally, this is an open process, but in practice this is only the case in the initial stage of the process (ICS 2016). Companies report a significant lack of transparency in the final stages of the bidding process, which involves a direct negotiation of the contract between the government and the bidders (ICS 2016). Another reported form of corruption in procurement is the establishment of shell companies, which bid on and win contracts, and subsequently, go bankrupt without delivering any goods after receiving payments (OSF 2016). It has been alleged that the money earned is split between corrupt government officials and those connected to the shell companies (OSF 2016). Transparency International classifies Uzbekistan’s defense industry as having a very high risk of corruption; procurement in particular is subject to a critical risk of corruption (GDACI 2015).

A prominent corruption case involves Gulnara Karimova, the oldest daughter of President Karimov. Gulnara Karimova allegedly extorted bribes totaling over USD 1 billion in exchange for helping telecommunications companies obtain operating licenses. Swedish company TeliaSonera paid USD 381 million in bribes and promised an additional USD 75 million (OCCRP, Mar. 2015). In 2015, TeliaSonera paid a combined USD 1.4 billion to U.S. and Dutch prosecutors to settle the charges (Market Watch, Sept 2015). Similarly, Russian-owned cellular company VimpelCom agreed to pay USD 835 million to settle charges brought by U.S. and Dutch authorities for its role in the case (The Guardian, Feb. 2016). While, Dutch bank ING Group is subject to an ongoing investigation over its failure to report irregular transactions related to the VimpelCom case (Reuters, Mar. 2017). Switzerland’s Attorney General’s Office froze over USD 790 million in funds on Gulnara Karimova’s bank accounts that they suspect to be connected to the case (OCCRP, Jan. 2017).

There is a high risk of corruption in Uzbekistan’s natural resource sector. Many of the largest state-owned enterprises (SOEs) used to be government entities before they were spun off; many of these SOEs still exercise government powers (ICS 2016). Corruption has allowed the country’s elite to illegally appropriate the country’s resources (TI 2015). The Uzbekneftegaz National Holding Company is dominant in the oil and gas industry, and even though there is no legal mandate for the practice, foreign companies need the company’s approval to operate in the sector (ICS 2016). The government uses the licensing process to protect quasi-governmental institutions and companies from competition (ICS 2016). Evidence also shows that the government misuses its power to extract bribes from companies in the licensing process (TI 2015). The value added to GDP by the natural resources sector remains low due to the government’s failure to create an institutional environment conducive to private investment and fair market competition (BTI 2016). Companies operating in oil and gas sector can find information on current tenders, technical requirements and specifications on the website of the Uzbek National Oil and Gas Company’s procurement agency.