BTA v Ablyazov: the secret billionaire

This month the High Court will ­decide the fate of Mukhtar Ablyazov, the billionaire from Kazakhstan who is alleged to have absconded from that country and of having embezzled funds out of its JSC BTA Bank.

In what is a preamble to the biggest case of the year, BTA’s English lawyers at Hogan Lovells want ­Ablyazov jailed for what they allege is contempt of court.

Since he was first instructed by the bank in 2009 Hogan Lovells partner Chris Hardman has tracked Ablyazov’s funds and ­attempted to have them frozen through London’s High Court.

It is a story of intrigue, deception and calculated legal risks. It is a trial so huge that it has involved more than 100 court hearings in front of five judges, taking the time of more than 50 leading lawyers, including 22 partners and 32 barristers, of whom eight are QCs.

Salutary history lesson

In 2009 Ablyazov was sitting as ­chairman of the board of directors of BTA, the bank he had acquired with a consortium of investors in 1998 for $72m (£45m). The bank had been in the international headlines as a ­financial institution with some ­precarious financials.

Ablyazov was no stranger to ­controversy. He had a high-profile career in Kazakhstan, having headed the Kazakhstan Electricity Operating Company in 1998 and within a year being appointed as Minister of ­Energy, Industry and Trade.

By 2002 Ablyazov had fallen ­spectacularly from political grace. He was convicted of “abusing official powers as a minister” and sentenced to six years in prison. This came a year after he founded the opposition movement, the Democratic Choice of Kazakhstan, which had challenged President Nursultan Nazarbayev.

He served 10 months before being pardoned. Upon his release he moved to Moscow, where he stayed for two years before being invited back and taking up the position of chair of the bank.

For a few years things went swimmingly, but then the bank began to lose money. Pressure mounted for a rescue and the Kazakh government told BTA to restructure its debt. It had until 18 September 2009 to do so, and to reinforce its point the government took steps to revise bank insolvency legislation.

The country’s new bank restructuring law came into being on 30 ­August 2009, legislation that would allow the state to restructure the debt of a distressed bank quickly and bind dissenting creditors.

Within a year Ablyazov arrived in London claiming he had been hounded out of the country by the political elite. BTA had already called in the lawyers that May – a financial black hole had been discovered and it wanted to know where the money had gone.

What followed was unprecedented in the English courts. Ablyazov was accused of siphoning billions of ­dollars from the bank into an underworld of offshore accounts. He retaliated that the Kazakh government had persecuted him because of his political opposition to the ruling regime.

In the UK he applied for ­asylum, which he was later granted, and set up home in a nine-bedroom mansion in London’s Bishop’s Avenue. At the same time, lawyers acting for the bank began ­action to freeze his assets through London’s High Court.

Digging the dirt

Initially, claims levelled at Ablyazov alleged the misappropriation of funds totalling $2bn. This figure has since ballooned to around $6bn.

Such is the magnitude of the case that the court has split it into five tranches. It is the only trial to dwarf the action being brought by Boris Berezovsky against Chelsea FC owner Roman Abramovich and already the BTA preliminary hearings have set several legal precedents.

Tensions around the case will be heightened later this month when Mr Justice Teare decides whether ­Ablyazov should be jailed for being in ­contempt of court, as BTA’s lawyers contend he has been for several years.

At the November hearing New Square Chambers’ Stephen Smith QC, leading for BTA, told the court that Ablyazov had hidden and dealt with his assets in violation of a 2009 freezing order by Teare J. They wanted him jailed.

This is the culmination of a series of proceedings brought by Hogan Lovells on behalf of BTA against Ablyazov asking him to disclose ­details of his finances.

The claimant argues that Ablyazov, who is now on his third set of lawyers, having moved from Clyde & Co to Stephenson Harwood in December 2009 to Addleshaw Goddard in ­September 2011, has consistently ­violated court orders and refused to cooperate. It is time for the court to take ­action, Smith says.

And there’s more…

Rewind to August 2009. Ablyazov had landed in the UK and was applying for asylum. He had instructed Clydes to defend him in the action being brought against him by the bank.

In August that year Mr Justice Blaire granted BTA an ex parte ­freezing order against Ablyazov and a series of individuals and companies accused of being complicit in the ­alleged fraud. These comprised Ablyazov; Roman Solodchenko; Zhakslyk Zharimbetov; Drey Associates; Anthony Stroud; John Wilson; and Sarah Wilson.

That order was continued by Teare J and Ablyazov’s passport was confiscated to prevent him from ­leaving the country later that month.

The following month Clydes went to the Court of Appeal (CoA) to ­challenge the disclosure orders made by Teare J against the seven ­appellants. According to the CoA judgment, given by Lord Justice Pills, “central to the appeal is the defendants’ submission that disclosure should not be ordered because the information revealed could be used by the prosecuting authorities in Kazakhstan in criminal proceedings brought there against the first to third defendants. It is alleged that the authorities might obtain the ­information even if the claimants [the appellants Ablyazov and others] did not willingly provide it.”

Teare J had got the balance wrong, Fountain Court Chambers’ Brian Doctor QC, representing Ablyazov, told the court. The appellants would be “irreversibly prejudiced by disclosure”, he said.

The appeal was rejected. In the ruling, Lord Justice Sedley went a step further to address the allegations made by the appellants about their claims of persecution in Kazakhstan.

The judge stated: “[Doctor] has suggested repeatedly that the rule of law does not operate in that country and that his clients, if returned, face arbitrary arrest, a prearranged trial, severe punishment and confiscation of their assets. If this is a fair account of what would await them if returned – and we are told there is no extradition treaty – then their possible ­disclosure of incriminating material is beside the point: the Kazakh state does not need further evidence.

“If it is not a fair account – and the material we have seen, including a detailed draft indictment, does not very obviously support it – then Mr Doctor’s case may actually be stronger. But he cannot have it

both ways.”

Hard facts

Over the course of the next six months Hogan Lovells put together a case for the courts to appoint a BTA receiver.

A lawyer close to the case recalls: “The court was asked to appoint KPMG as receivers. Never had that been done on this scale before. The main thrust of the argument was that Ablyazov wasn’t telling the truth and was hiding assets.”

Teare J had already ordered ­Ablyazov to be cross-examined by the court about the extent of his assets. The push for a court-appointed ­receiver piled pressure on him and his fellow defendants. The order was granted and KPMG appointed.

The businesses to which the ­receivership order applied were all based outside England and owned through a complex structure of ­offshore companies. Despite the complexity and breadth of Abylazov’s asset holdings, the court was prepared to subject it to control by ­independent receivers based in ­England.

Of course there was an appeal, but this was rejected and the subsequent attempt by Ablyazov’s lawyers to go to the Supreme Court was also turned down.

This sparked international interest.

Barclays, HSBC, JPMorgan, Merrill Lynch and Morgan Stanley were all affected by the demise of BTA. The part-nationalised RBS is believed to have lost $1.5bn. Clearly, the stakes were high.

Several extensions to the receivership order were made to add a further 636 companies to the receivership on the basis of evidence that they ­belonged to Ablyazov but had not been disclosed.

Hardman found himself waiting for six hours in the reception of a North London storage company as he attempted to gain access to ­documents believed to have huge ­implications for the case.

When the doors were finally opened he found documents relating to BTA and computer files dating back, it is understood, years.

This sparked an attempt to gain a court order forcing Yahoo! to give the bank’s lawyers access to emails being sent to and from an account based in Cyprus. The court granted the extension without notice to Ablyazov’s lawyers and Hogan Lovells was given access to emails being sent from an alleged Ablyazov accomplice in Cyprus.

“[Hogan Lovells] were seeing emails that had been sent a few days before by [Ablyazov’s brother-in-law Syrym Shalabayev],” a further source says. “This sort of access had never been granted before. There were some raised eyebrows among the London judiciary, but they couldn’t shut the door after the horse had bolted.”

Last June Shalabayev was jailed in his absence for 18 months for assisting Ablyazov in hiding his vast assets in defiance of High Court orders. The court papers had been served to him online and he was alerted to the fact that his emails had been monitored when he received an email via his anonymised account demanding that he turn up at the London court.

With Shalabayev’s whereabouts still unknown and his refusal to come forward, last September Mr Justice Henderson ordered Clydes partner Julian Connerty to disclose his ­contact details (The Lawyer, 12 ­September 2011). The firm claimed that the order posed an inherent ­conflict of interest.

The privileged view

At the same time the fight over ­exactly what should be divulged by Ablyazov continued.

Clydes claimed privilege could be applied to 221 documents, which ­became known as the ‘221 schedule’.

Henderson J’s judgment, which came in November, made it clear that he did not approve of the shift in Clydes’ approach. He remarked that the 221 schedule was a “process which, in my judgement, reflects ­little credit on Clyde & Co, and it is hard to avoid the conclusion that an insufficiently rigorous and professional approach was adopted to at least the initial phases of the review”.

The damage had already been done, however. At the end of 2011 New Square’s Smith asked the court to jail Ablyazov for eluding disclosure orders made against him.

“I didn’t have any intention to hide anything,” Ablyazov told the court. “I did exactly as much as my solicitors advised me.”

Nothing to do with this case is ­simple or straightforward, nor would you expect it to be when there are ­billions of dollars at stake.

The ­extent to which Ablyazov has kept his lawyers informed of the intricacies of the BTA web is unknown. The exiled banker has switched firms three times: from Clydes to ­Stephenson Harwood (where he had a five-partner team on board) to ­Addleshaws.

No doubt Hogan Lovells will also be asking questions about how the banker intends to settle those ­mammoth legal bills he is believed to be building up. Should the finances be coming from an offshore account it could catch the eye of the court, leaving Addleshaws to ponder whether it will get a lucrative pay day.

Much will depend on the outcome of the contempt proceedings against Ablyazov.

Whatever the outcome, many lawyers connected to the case believe it will get to trial, such is the animosity between the parties. No doubt this will allow for a post mortem of the BTA receivership and unveil precisely who was involved

in its demise.