A customs union is still several months away from taking effect, but Russia already seems to be exerting influence over Kazakhstan’s trade. Concerned that its own market will become flooded with smuggled Chinese goods, Moscow is pressuring Astana to tighten controls at the Kazakhstani-Chinese border before July 1, when Russia is due to remove its checkpoints along its frontier with Kazakhstan.
Highlighting the existing problem with tariff evasion, Kazakhstani authorities on April 28 arrested the head of customs at Khorgos, the main entry point for imports from China, and a deputy head of the KNB, Kazakhstan’s successor to the KGB. The arrests were part of an effort to smash a $130-million smuggling ring. Arrest warrants have been issued for 14 others.
The smuggling ring allegedly earned more than $5 million a week by illegally importing cars, Murat Zhumanbai, a spokesman for the Financial Police, said during a May 3 news conference. “This was an organized criminal group, consisting of more than 100 people, which has for a long time dominated the smuggling of goods from China.”
The Customs Union, comprising Belarus, Kazakhstan and Russia, will turn Khorgos into China's gateway to a market of over 170 million people. Russia is thus understandably eager to ensure rigorous controls are in place there on July 1.
After negotiations last summer, Yevgeny Inchin, the deputy head of Russia’s border service, told journalists that 43 percent of goods smuggled into Russia first crossed Kazakhstan’s borders. Many interpreted Inchin’s statement as a warning to cut down on the smuggling.
“The Russians will force our government to deal with smuggling,” an entrepreneur involved in logistics at Khorgos told EurasiaNet.org. “These people were the really rich people. They made a lot of money on the black market for a very long time,” the entrepreneur added, referring to the suspected leaders of the smuggling ring.
Under terms of the Customs Union, import duties collected at each border will be shared proportionally among the three participating countries, meaning duties avoided by smugglers at Khorgos represent lost revenue to Russia and Belarus, as well as to Kazakhstan.
The figures involved are substantial. For example, the Financial Police noted that the smuggling ring charged as much as $25,000 to bring each car across the border from China. But only a tiny fraction of the money ended up in government coffers in the form of customs duties.
The smuggling issue became a hot topic after the completion of a report in 2008 for an international firm that was pondering an investment in Khorgos. The study identified a glaring discrepancy between Kazakh customs statistics, which recorded 3,000 trucks passing through Khorgos, and Chinese data, which put the figure at 36,000 trucks that year.
Observers attributed the discrepancy to black market activity. Kazakhstan ranked 105th out of 178 in Transparency International’s latest Corruption Perceptions Index. Russia ranked 154th.
Zhumanbai, the Financial Police spokesman, said the crackdown on the car ring at Khorgos was mounted “on behalf of the president, with the approval of the General Prosecutor's Office,” and had involved 28 coordinated raids on houses, warehouses and offices in Almaty, the Kazakh commercial capital, in Khorgos, and in the surrounding regions.
At Khorgos, authorities found bugging equipment, and a stash of compromising recordings of business executives. They are seeking to freeze the assets in 12 bank accounts, and take over property belonging to suspected members of the group, including 44 apartments, 12 houses, 47 cars, two car dealerships, 10 Kamaz trucks, and even two restaurants.
Prominent political commentator Dosym Satpayev, director of Kazakhstan’s Risk Assessment Group, suggested the raid was an outgrowth of an inter-agency rivalry triggered by the KNB’s arrest last month of a senior figure in the Financial Police, rather than a move to clean up the customs service. “When the KNB arrests some representative of the Financial Police, or the Financial Police arrests some member of the KNB, it’s not only connected with the struggle against corruption, but also with conflicts between these two agencies,” he told EurasiaNet.org.
Nurtai Abykayev, the head of the KNB, who was appointed last year, dismissed the notion that a turf war was taking place behind the scenes. “There are no inter-agency issues. We, the state authorities, are all on the same side, and those involved in corruption were all put in their place,” he told reporters on the sidelines of the Astana Economic Forum on May 4.
But Satpayev said that even if the raid was a genuine attempt to reduce graft at Khorgos, he doubted that corruption in the customs department will be easy to uproot. “Unfortunately these arrests will not settle the problem of corruption in this sphere, because the customs service in Kazakhstan has attracted a lot of people who want to earn easy money,” Satpayev said.
Meanwhile, the entrepreneur at Khorgos said that if Russian criminal groups decide the Customs Union makes smuggling Chinese goods through Kazakhstan more attractive than the present route through Russia’s Far East, they will seek to elbow out any Kazakh smuggling rings. “If they [Russian criminal groups] think that this route through Khorgos will be more beneficial, then they will set the rules at Khorgos.”
Either way, he said, “Russians will definitely control the situation.”