Belgian judge freezes Kazakh government’s half billion

[This is an English translation of an article which originally appeared in De Tijd on 07 July 2021]

BART HAECK | 07 July 2021 19:36

In a dispute over an oil refinery in Kazakhstan, more than half a billion euros in a Belgian account belonging to the Kazakh government has been frozen. An attempt to get the money released through the Brussels Court of Appeal failed at the end of last month.

Belgium has become the scene of a curious international dispute over an oil and gas refinery in Kazakhstan. In the course of this dispute, two businessmen from Moldova managed to obtain the precautionary seizure of more than half a billion euros from the Republic of Kazakhstan in Belgium. An attempt to get the Brussels Court of Appeal to lift the seizure failed a fortnight ago.

The main points

• The Republic of Kazakhstan has been ordered by the International Court of Arbitration to pay compensation of half a billion euros for its nationalisation of an oil and gas refinery.
• It is refusing to pay the money to the original investors.
• Hence, they are trying to seize property of the Republic of Kazakhstan abroad.
• That search led them to Brussels, where they seized more than half a billion euros. The Brussels Court of Appeal confirmed the seizure at the end of last month.

The story dates back to the 2000s, when Moldovan businessmen Gabriel and Anatoli Stati invested in a refinery in Kazakhstan. The business went well for a few years until a dispute erupted with the government. This was followed by a succession of audits, criminal proceedings, fines and heavy tax demands to bully the Moldovans, until the government nationalised the refinery in July 2010.

Yet they were not completely powerless. To build confidence among foreign investors, Kazakhstan has signed an Energy Charter Treaty. This states that investment disputes will be assessed not by a judge in Kazakhstan, but an international arbitration tribunal in Stockholm. In December 2013, this tribunal ordered the Republic of Kazakhstan to pay 506 million dollars in damages.

The Kazakh government tried to challenge this decision, lost again, then simply refused to pay. An international search got under way for assets of Kazakhstan located abroad, which in turn led to Brussels.

Seizing property of another state is especially difficult. In principle, it cannot be done, because countries have to respect each other’s sovereignty. The only exception is property not used for carrying out government functions.

The Moldovan businessmen’s lawyers therefore focused on accounts held with the Belgian branch of Bank of New York Mellon, near the European Parliament in Brussels. Part of Kazakhstan’s sovereign wealth fund is parked there. The state uses this to make foreign investments. However, they also found a savings fund, which is only supposed to raise money rather than being used for current government expenditure. When the lawyers obtained a precautionary seizure of the savings fund at the end of 2017, they were surprised to find that it contained 22 billion euros.

A Belgian court is competent to rule on a seizure as soon as assets of a foreign state or international organisation are found in Belgium.

A complication soon arose: the savings fund was held not in the name of the Republic of Kazakhstan, but in the name of the National Bank of Kazakhstan, which manages it on the Republic’s behalf. The management contract was governed by UK law, so the litigation continued in England. Proceedings also got under way in the United States, where the Moldovans obtained financing, and there were confiscations in Luxembourg and the Netherlands. The court of first instance in Brussels and then also the court of appeal upheld the seizure.

It is not the first time that Belgium has played host to international disputes. This is because a Belgian court is competent to rule on a seizure as soon as assets of a foreign state or international organisation are found in Belgium.

A Cypriot creditor of Ukraine once had an Antonov – one of the largest aircraft in the world – seized in Zaventem. The same sometimes happens with money held at Eurocontrol in Brussels, which collects landing and flight fees and passes them on to Member States. Creditors of Albania, Moldova and elsewhere have seized such sums in the past.

A Cypriot creditor of Ukraine once had an Antonov – one of the largest aircraft in the world – seized in Zaventem.

The collapse of the Russian oil company Yukos shows how sensitive this can be. In 2014, an international arbitration tribunal ordered the Russian state to pay 50 billion dollars in damages to the former Yukos shareholders. Attempts were then made in Brussels to confiscate anything that sounded or looked Russian, if only to annoy Moscow and gain leverage in the negotiations.

Since then, Belgian law has been amended and a judge must carry out a precautionary review of legality before assets from another country can be seized. This is not the only reason why the seizure of Kazakh funds is unusual. It is also unusual because the Brussels Court of Appeal ruled that the Republic of Kazakhstan is the real owner of the money, even though the account is in the name of its central bank.

The Brussels Court of Appeal’s ruling does not mean that the fight for the oil millions is over: an appeal can still be made to the Court of Cassation. This is merely the battle over the ‘precautionary seizure’, which is supposed to prevent assets from disappearing. The decision on the ‘executory seizure’ will have to make clear whether the money will end up in the Moldovans’ account.