Financing fictitious deals

KAZAKHSTAN — Kazakh Prime Minister Karim Masimov suggested at a cabinet meeting on Aug. 18 that “audits be conducted to prevent fraud by bank executives.”
He said confidence in the integrity of bank managers had been undermined by instances of fraud recently discovered at two large banks, BTA and Alliance Bank. “The top four managers of the banks were swindlers,” Masimov said, and asserted that they had submitted false information to regulators.
BTA Chairman Mukhtar Ablyazov left Kazakhstan soon after the government bought shares in the bank at the start of the year under a memorandum signed by the government and shareholders, due to the risk of default. After new managers representing the state were appointed, authorities brought charges against Ablyazov and several members of his team, accusing them of financing fictitious deals. The Prosecutor General also accused the banker of misappropriating US$550,000.
The Financial Regulatory Agency found a discrepancy in the books at Alliance Bank that offered the state the controlling interest at the start of the year for a symbolic price of less than one U.S. dollar. The bank provided guarantees for fictitious contracts worth $1.1 billion that were funneled into offshore accounts.
There have been no arrests in the Alliance Bank case, but the regulator accused former Chairman Zhomart Yertayev of providing the guarantees. Chairman of the Board Margulan Seisembayev explained that this was Yertayev’s method for raising shareholder capital, but Financial Regulatory Agency Chair Yelena Bakhmutova considered this activity illegal. The bank had not received the permission required by Kazakh law to provide guarantees for those amounts.
Bakhmutova said the agency knew which measures were needed to prevent fraud. “Bank decisions should not be made by one individual, but by a board, and naturally, banks and financial organisations must have normal risk management systems in place. And only people with flawless business reputations should be named to executive positions, not just the board of directors and management, but shareholders as well,” she said.