Uzbekistan Weekly Roundup

Since last year, following the seizure and break-up of Zeromax, a large state conglomerate involved in everything from oil to sports to textiles, the government of Uzbekistan has been cracking down on both domestic and foreign businesses with increasing ruthlessness. In March 2010, Zeromax’s chief executive, Miridal Djalalov, was reportedly detained and questioned. Then in May 2010, Zeromax, rumored to be associated with President Islam Karimov's controversial daughter Gulnara Karimova, was put into bankruptcy for alleged tax debts, and various projects, including some involving German and other foreign investors, were scuttled.

In October 2010, despite the increasingly important role of South Korean investment in Uzbekistan, special forces raided a South Korean golf club, roughing up some guests and provoking protests from Seoul. In December 2010, seven Turkish companies were shuttered, and state television reported in March 2011 that some 50 Turkish companies were raided and closed, including a large supermarket and other businesses that had been operating without any problem in Uzbekistan for years. Uzbek authorities were sketchy about their claims against these firms -- they alluded to vague charges of tax evasion or even religious extremism in the case of the Turkish companies.

Officials began to increase their pressure on Oxus Gold, a British mining company that had invested in a joint venture with Amantaytau Goldfields. Back in 2006, Oxus had been forced to accept an investment from Zeromax. Then, after Zeromax was seized and Djalalov, who was also on the board of Oxus, stepped down, in February Oxus announced its exit from Uzbekistan, indicating that it was trying to sell its shares. Soon after in March, Oxus reported that Uzbek officials were conducting a hostile audit and essentially a takeover of its assets, and the company was forced to suspend operations.

In July, Said Ashurov, a Tajik national who served as Oxus' chief metallurgist was arrested at the Tajik border and charged with possessing state secrets. Robert Amsterdam, a London-based lawyer for Oxus, said the charges are bogus and part of an overall strangulation of his company in an increasingly hostile climate to foreign investors. A military court sentenced Ashurov on August 10 to a 12-year prison term for espionage, but Amsterdam said the information Ashurov held was in the public domain, or known to the community. Ashurov suffers from hepatitis and has been denied medical treatment, and witnesses who testified against him were said to have been beaten in detention. Amsterdam characterized the last six months as a "bizarre, anarchic state of affairs" possibly related to a struggle for power at the top and conflicting attitudes toward foreigners.

Germany has had a more intense relationship with Uzbekistan in recent years than other Western countries, but is now getting decidedly mixed messages from the Uzbek government. Recently, a Green Party investigation revealed that Germany has been paying Uzbekistan an average of 11 million euros per year since 2002 for use of the Termez air base to supply troops in Afghanistan. Now, under pressure from the Uzbek government, the German Ministry of Defense declared that the information about the payments must be classified. The fees were paid despite one-time sanctions imposed by the EU on Uzbekistan related to the massacre of protesters in Andijan in 2005.

After the Zeromax closure, German businesses began to complain about unreturned debts, including for the construction of an ambitious soccer stadium, a project closed for a time and then revived with new state financing. When Uzbek Foreign Minister Vladimir Norov visited Berlin in May, the German human rights commissioner was more vocal than in the past about Uzbekistan's many human rights problems, including the use of forced child labor in the cotton industry. German MPs also lodged queries with the EU about the exploitation of children, and protested the jailing of independent journalists during Norov's visit -- and found that later, in retaliation, a German parliamentary delegation scheduled to visit Uzbekistan was cancelled.

Meanwhile, a German business delegation was welcomed in June, yet warmer relations and a higher trade turnover this year didn't shield some companies from problems. On July 27, armed Uzbek special forces swooped down on a German baked goods factory owned by Steinert Industries in Yangiyul, about 30 kilometers outside of Tashkent, and also raided the bakery's offices in the capital, the independent news site fergananews.com reported. The same strong-armed tactics were used on the German company as had been used on the British, South Korean, and Turkish companies – armed, masked special agents ransacked the office and plant, confiscated computers, and terrorized employees.

When German Ambassador Wolfgang Neuen went to see what was going on at the company's head office, he was reportedly seized and blocked from entry to the building, says fergananews.com. Rumors began to circulate in the expatriate community that the German diplomat had been "roughed up," but the Embassy made no comment. Fergananews.com obtained a copy of a German note verbale sent to the Uzbek Foreign Ministry, protesting the bakery raid.

Clearly, at least some forces in Tashkent are struggling with the issue of how much to allow foreign business to flourish in Uzbekistan, and share in its considerable wealth of hydrocarbons, minerals and cotton. Several factors drive the upheavals noted of late. For one, as we know from news reports and alleged cables revealed by WikiLeaks, business in Uzbekistan is heavily controlled by the state and also highly corrupt. When foreigners become involved in Uzbekistan, they tend to demand more transparency and orderly and predictable procedures -- and that interferes with the plans of corrupt officials.

Another factor is an increasing sense of national pride and desire to shake off the Russification of the Soviet past, and ensure that Uzbekistan can make its own way in the world on its own terms. Tashkent has invited in many outsiders to become more independent of Moscow, but as other Central Asian dictatorships have found, it has grown more dependent on China and the West as a result. Particularly with its assistance to the Northern Distribution Network to supply NATO, Uzbekistan has been drawn into an active role in the war in Afghanistan -- a conflict that formally Tashkent has always said must be solved peacefully by political agreements. As the 20th anniversary of independence draws close, Tashkent has increased its nationalist rhetoric and has been getting rid of visible signs of centuries-old Russian presence, mounting various reconstruction and anti-corruption campaigns.

The battle against corruption is selective, of course, and tends to focus on local officials who have crossed the center's will, and leave higher-ups untouched. Recently, several local mayors and city officials have been dismissed or placed under investigation, and a number of prosecutors, law-enforcers, and judges have been detained on charges of accepting bribes. The anti-corruption convulsion that appears to have begun with Zeromax and affected figures close to the president has extended to the provinces in both government and business.

Ultimately, some Western observers have concluded that the crackdown on foreign business, the selective anti-corruption campaign, and the harassment of human rights advocates as well as religious believers are all related to a complex and largely invisible succession struggle for the presidency as Islam Karimov, in power more than 22 years, grows older and eyes the waves of unrest in the Middle East. Whether Karimov himself is engineering the anti-corruption and anti-foreign crackdowns to keep rivals for power off-balance, or whether officials jockeying for position are using them to come to power themselves remains to be seen.