Companies in Uzbekistan have shelled out around half a billion dollars in fines after failing to pay salaries to their staff.
This is the latest indication that the country is grappling with economic problems which are absent from the rosy official picture of steady growth.
Firms were slapped with fines worth a total of 1.5 billion sum ($500 million at the official exchange rate) last year for wage arrears owed to employees, Russian state news service Sputnik reported this week.
The fines resulted from 1,300 complaints filed with the State Legal Labor Inspection service, Sputnik said.
The wage arrears were generally the result of a lack of funds at the organization in question, an unnamed labor inspection official. Other reasons included organizations holding money back to make a profit on interest, and simple bureaucratic hitches in making payments.
The revelation suggests that companies may be ailing in the face of the economic crisis that is gripping Central Asian — although the government is in denial about the impact of the region-wide crisis on Uzbekistan.
Its bullish economic forecast sees growth at 7.6 percent this year, despite falls in key commodity prices — gold, cotton and gas — and a massive drop in remittances from migrant laborers in Russia that is eating into disposable incomes.
With recession in Russia forcing many migrants out of work, the government is reporting that jobs are being created at home in Uzbekistan on a massive scale.
If Tashkent’s statistics are to be believed (and economists warn that they should be taken with a grain of salt), nearly 2 million extra jobs will have been created over two years by the end of 2016: 980,000 in 2015 and 990,000 in 2016, according to Sputnik.
Russian-owned telecommunications giant VimpelCom is to shell out $835 million in fines after admitting to securing its foothold on the market in Uzbekistan through bribery.
The U.S. Department of Justice said in a statement on February 18 that it is also seeking the forfeiture of $850 million of bribes payments allegedly made by VimpelCom another Russian-owned company, MTS, and now being held in bank accounts in Switzerland, Belgium, Luxembourg and Ireland.
U.S. government officials have described these as historic turning points.
“These cases combine a landmark [Foreign Corrupt Practices Act] resolution for corporate bribery with one of the largest forfeiture actions we have ever brought to recover bribe proceeds from a corrupt government official,” said Assistant Attorney General Caldwell.
The lion’s share of the fines — $795 million — will be paid to the U.S. and Dutch corruption-busting bodies that have been investigating the activities in Uzbekistan of VimpelCom and other telecoms companies.
VimpelCom officially admitted earlier this week to engaging in corrupt practices in Uzbekistan.
VimpelCom admitted it had “through various executives and employees, paid bribes to an Uzbek government official, who was a close relative of a high-ranking government official and had influence over the Uzbek governmental body that regulated the telecom industry,” the Justice Department said.
That individual is widely held to be Gulnara Karimova, the eldest daughter of Uzbekistan’s President Islam Karimov.
Tashkent is also seeking the return of those frozen funds, arguing that it is a victim of bribery.
An international telecoms company has admitted engaging in corrupt practices in Uzbekistan, following bribery probes spanning several continents whose tentacles reach into the heart of the ruling Karimov family.
This marks the first official admission by an international telecommunications company of illegal practices in a case that centers on the affairs of the eldest daughter of Uzbekistan’s President Islam Karimov, Gulnara Karimova, who was last heard of under house arrest in Uzbekistan on corruption charges.
Russian-owned VimpelCom said it is prepared to “acknowledge certain violations of the U.S. Foreign Corrupt Practices Act and relevant Dutch laws” and pay fines to corruption-busting bodies in the United States and Holland.
The admission was made in a report on final quarter results for 2015, released on February 17 by VimpelCom, which is majority owned by Russian billionaire Mikhail Fridman. Norway’s state-owned Telenor owns a minority stake that it is trying to sell.
VimpelCom said that discussions with the U.S. Department of Justice and Securities and Exchange Commission and the Dutch Public Prosecution Service had resulted in “prospective settlements” that, subject to approval, will see it admit breaking U.S. and Dutch anti-corruption laws and paying “fines and disgorgements.”
The size of the anticipated payments was not disclosed, but VimpelCom said that it was within the $900m it set aside last November to cover potential liabilities from the corruption probes.
Ethnic tensions are bubbling in southern Kazakhstan, where local authorities have stepped in to restore calm following the murder of a child by a member of an ethnic minority.
Worryingly for Astana, this is the second time in a year that the south of the country has witnessed a local dispute splitting along ethnic lines and breaking out into scenes of unrest, albeit small in scale.
A mob took to the streets in the village of Buryl in Zhambyl Region following the murder of a six-year-old child to demand the ejection from the village of the family of the murder suspect, the NewTimes.kz website reported.
The ethnic element to the dispute emerged because the child, an ethnic Kazakh, was allegedly stabbed to death by an ethnic Turk from the village during a robbery on February 15.
Local authorities held a public meeting to calm tensions on February 17, the day after a mob of 100 mainly Kazakh villagers besieged the house of the family of the suspect, who is under arrest.
Video of a meeting held in the village and attended by elders, posted by NewTimes.kz, showed elders and officials appealing to a rowdy crowd and a heavy police presence.
There were no reports of serious damage or injuries, unlike during a riot last year in the village of Yntymak in southern Kazakhstan following the murder of a Kazakh man by an ethnic Tajik neighbour.
Hot on the heels of a corruption scandal in Uzbekistan’s financial sector comes news that a commercial bank that has foreign shareholders has been barred from conducting hard currency operations.
The development is the latest sign of troubles hitting Uzbekistan’s banking industry, as Central Asia reels from an economic crisis that is slowing growth and pressuring currencies across the region.
Uzbekistan’s central bank has imposed a six-month ban on Hamkorbank conducting foreign currency operations with businesses on the grounds that it has been breaking currency laws, the Anhor.uz news website reports.
No further specifics were offered for the ban, which is unusual and will present a significant barrier to a bank with foreign capital conducting commercial operations.
The International Finance Corporation (a financing arm of the World Bank) and the Netherlands Development Finance Company (a development bank controlled by the Dutch government) between them own 30 percent of shares in Hamkorbank, according to documents filed with Uzbekistan’s stock exchange.
The time for showers of gold is over, President Nursultan Nazarbayev warned his countrymen on February 16 in his latest attempt to inculcate a popular spirit of parsimony.
Instead, the people of Kazakhstan should exploit the opportunity of a crisis caused in part by low oil prices to transform the country into a more innovative and dynamic economic performer.
“We should not expect to be showered with gold,” he said in remarks quoted by the Nur news agency.
Those remarks appear much in the same mold as recent exhortations by Nazarbayev for the people of Kazakhstan not to indulge in luxuries such as lemons.
“Every crisis is a stage ahead of new development,” which, he said, means weaning the economy off its current dependence on oil and gas.
One way the government intends to that is by raiding the state pension pot, which Nazarbayev ordered last week as part of measures to stimulate growth.
The economy is in desperate need of help. Some economists are forecasting that the economy will shrink this year for the first time in almost two decades.
In line with Nazarbayev’s order, issued on February 10, 1.5 trillion tenge ($4 billion) worth of assets will be withdrawn from the state pension fund — a quarter of its total holdings of nearly 6 trillion tenge — to help plug holes in the budget deficit and support small businesses and infrastructure projects.
A top banker has been arrested in Uzbekistan on suspicion of making a fortune out of Uzbekistan’s black currency market and laundering the proceeds.
The arrest comes as the rate of the currency, the sum, soars against the dollar on the black market, creating even larger than usual profit margins for those in control of the illegal trade.
Asaka Bank chairman Kahramon Oripov is in detention on suspicion of “currency crimes and legalization of criminal revenues,” an unnamed spokesperson for the General Prosecutor’s Office told Russia’s RIA Novosti news agency on February 12.
The confirmation of Oripov’s arrest, which had been rumored, came days after he was dismissed by the government as chairman of the state-owned Asaka Bank, which handles payments for the automobile industry in Uzbekistan.
Oripov is suspected of exploiting the bank’s position as the financial institution responsible for taking payments for car purchases to carry out his scheme, the Tashkent-based Uzmetronom.com website reported earlier this month.
This was allegedly made possible by the unorthodox system through which payments are made to purchase cars in Uzbekistan, whereby only dollars, rather than sum, are accepted to buy some models of vehicles assembled in-country by the GM Uzbekistan, a US-Uzbekistani joint venture which accounts for the bulk of the country’s car sales.
The money to buy a car must be deposited in dollars at an account in Asaka Bank, which is supposed to transfer it in hard currency to Uzavtosanoat, the state company that holds Tashkent’s share in GM Uzbekistan.
Mortgage protests in Kazakhstan are becoming a familiar sight. In attention-grabbing demonstrations over the past couple of days, crowds have swarmed around banks in the commercial capital, Almaty, loudly banging pots and pans and blowing whistles.
“Down with banks!” chanted the two dozen people who took to the streets of Almaty on February 2.
A political activist recently jailed on charges of inciting ethnic strife has been released pending appeal after issuing a grovelling public recantation for his purported offense.
Serikzhan Mambetalin was freed on January 31 after serving just over a week of his two-year sentence.
“I am at home… How happy I am!” he wrote on his Facebook page on February 1.
Mambetalin’s Facebook page was regularly updated, presumably by his supporters, throughout his trial and incarceration, which began in October.
A court ordered Mambetalin’s release until the appeal is heard, but the activist has been made to sign a written undertaking not to leave his hometown, Almaty.
Mambetalin’s release came after he posted a contrite statement of repentance on his Facebook page on January 29 — a week after he was jailed along with another political activist, Yermek Narymbayev, who remains behind bars.
“The investigation gathered exhaustive evidence of my guilt,” the statement said. “Therefore I fully admit my guilt over the proof presented to me and actively repent.”
Mambetalin has changed his tune since his trial, when he strenuously denied any guilt and denounced the trial — which was condemned by international human rights watchdogs — as a “political order” motivated by his activism and his opposition to President Nursultan Nazarbayev.