On December 19, 2013 the arbitration tribunal of the Stockholm Chamber of Commerce partially granted the claims of A.Stati and his related persons (“The Statis”), and awarded them approximately USD 500 million. The full amount of the claim was more than US $ 4 billion.
On March, 19 2014 the Republic of Kazakhstan appealed this award to the Court of Appeal in Stockholm and requested its annulment.
While these setting aside proceedings were ongoing in Sweden, the Republic of Kazakhstan, through discovery proceedings in the US, obtained information and documents that revealed that Stati had engaged for years in Kazakhstan in a massive fraudulent scheme.
The essence of the fraud was that through a series of undisclosed related party transactions and falsified financial statements, and having had entered into fictitious contracts, the Statis had fraudulently inflated the construction costs of a liquefied petroleum gas plant in Kazakhstan. Furthermore they had made false statements in front of the international arbitral tribunal.
In addition, the General Prosecutors Office of the Republic of Kazakhstan through a mutual assistance request managed to obtain from the law enforcement authorities of Latvia further materials proving Stati's criminal scheme.
The Republic of Kazakhstan applied to amend its claim in the setting aside proceedings before the Swedish Court of Appeal on the basis that the Award had been obtained by fraud and contravened public policy. On 9 December 2016 the Swedish Court of Appeal decided the amended application and dismissed it. However, the Swedish courts declined to consider the merits of the finding of fraud.
In ongoing enforcement proceedings in England, the Republic of Kazakhstan submitted an application to include the findings of fraud and make submissions on public policy violations. On 6 June 2017 the English High Court found that there was a sufficient prima facie case that the Award had been obtained by fraud. The High Court gave its directions for a trial on the fraud which will start in October 2018 and for which preparations are ongoing.
After this finding, Stati quickly commenced proceedings requesting leave to attach assets in the Netherlands Belgium and Luxembourg without disclosing the English Court's finding on the prima facie evidence on the fraud. While the UK court had effectively suspended Stati's enforcement efforts in the UK, Stati initiated his enforcement actions in Belgium and the Netherlands in order to sidestep this ruling and to target assets in the UK, namely assets held by Bank of New York Mellon as custodian of the National Bank of Kazakhstan.
On 8 September 2017, the District Court of Amsterdam granted Stati leave to levy conservatory attachments of all claims that the Republic of Kazakhstan or the National Fund has on the Bank of New York Mellon in the Netherlands. On 13 October 2017, the Court of First Instance in Brussels granted Stati leave to levy similar conservatory attachments of all claims the Republic of Kazakhstan or the National Fund has against the Bank of New York Mellon in Belgium. Initially, the Bank of New York Mellon replied to both attachment orders that they were ineffective because neither the Republic of Kazakhstan, nor the National Fund had any commercial relationship whatsoever with the Bank of New York Mellon and that there were consequently no claims to be attached.
On 30 October 2017, the Bank of New York Mellon surprisingly reversed this position and voluntarily agreed to freeze the funds held in custody on behalf of the National Bank of Kazakhstan. The Republic of Kazakhstan and the National Bank of Kazakhstan remain of the view that as a consequence, Bank of New York Mellon is in breach of its contractual obligations vis-à-vis the National Bank of Kazakhstan. In an expedited process, the Republic of Kazakhstan and the National Bank of Kazakhstan had sought declarations from the High Court that Bank of New York Mellon was not entitled to freeze funds held as custodian for the National Bank of Kazakhstan. While the English Court refused to issue these declarations, the decision of 21 December 2017 raises important points on the meaning of a provision in the contractual arrangement between Bank of New York Mellon and the National Bank of Kazakhstan. Both the National Bank and the Republic of Kazakhstan are considering their position. In the meantime, this decision will not impact the National Bank's or the Republic of Kazakhstan's position in the foreign courts, nor will it impact on the Republic of Kazakhstan's case that the award that Stati is seeking to enforce was procured by fraud.
The trials on recognition and enforcement of the award of the arbitral tribunal will continue for a while.
In any event, the risks of the Republic of Kazakhstan are limited to the amount of the arbitral award - USD 497,658,101 plus interest, defined as six-month interest on US treasury securities, from April 30, 2009 to the date of full repayment, as well as 50% of the Statis’ litigations costs for the amount of USD 8 975 496.40.
The Republic will use all available opportunities to challenge enforcement in the same way as it has been done in the United Kingdom.
In addition, in October 2017 the Republic filed a RICO claim with the District Court of Washington, DC, to prosecute Stati and his other accomplices for their fraudulent activities.
As part of these proceedings on consideration of facts of the Statis’ fraud, the Republic will seek compensation for all losses, including those related to the freezing of assets.