U.S. Federal Court Compels Kazakhstan To Provide Worldwide Discovery Of Its Assets

Ruling Confirms Award Creditors' Rights in Enforcing US$543 Million Award

NEW YORK, May 19, 2020 /PRNewswire/ -- The U.S. District Court for the District of Columbia, on May 18, handed down its order in Anatolie Stati et al v Republic of Kazakhstan denying Kazakhstan's appeal against the decision of a U.S. Magistrate Judge in August 2019, which had in turn denied Kazakhstan's motion for a protective order against post-judgment discovery of Kazakhstan's worldwide assets.

This ruling is made in the wake of the Stati parties' long-running efforts to enforce a US$543 million Swedish arbitral award issued in December 2013. The award was since recognized and converted into a U.S. domestic court judgment by the same District Court in March 2018, a ruling subsequently upheld by the U.S. Court of Appeals for the D.C. Circuit and the U.S. Supreme Court.

In its ruling, the District Court found that Kazakhstan had made "no meaningful effort" to respond to the Stati parties' demands for documents showing its assets and rejected Kazakhstan's arguments that no further discovery should be made because two Kazakh officials had previously stated under oath that the nation did not have any executable assets in the United States. The ruling further stated that U.S. law allows a judgment creditor to obtain discovery "beyond a judgment-debtor's self-serving statement that it has no assets." The court also allows the Statis to discover documents relating to Kazakhstan holdings outside the U.S. 

The District Court further ruled that Kazakhstan would not be excused from further discovery on the ground that the Stati parties have attached Kazakh state assets in Europe, noting Kazakhstan's ongoing efforts to challenge those attachments.   

Anatolie Stati, CEO and sole shareholder of Ascom, one of the award creditors, said: "We welcome this ruling from the U.S. Court, which corroborates judgments by international courts and tribunals in disallowing Kazakhstan's continued repudiation of its international treaty obligations. In the meantime, current and prospective foreign investors in Kazakhstan should take note of the country's repeated failure to honor the investment protections that it claims it provides to foreign investment."

As part of separate ongoing attachment proceedings in Europe, the Stati parties have successfully secured and maintain the benefit of various attachments of Kazakh state property in Sweden, Netherlands, Luxembourg and Belgium, with the combined total value of all attachments worldwide exceeding US$6.25 billion. 

The U.S. court ruling is the latest development in the Stati parties' long-running battle to enforce the award for Kazakhstan's violations of the investor protection provisions of the Energy Charter Treaty. In December 2013, a Sweden based arbitration tribunal found that Kazakhstan had violated international law by failing to treat the Stati parties' investments in Kazakhstan fairly and equitably, and awarded the Stati parties more than US$500 million in damages, legal costs, and interest. The award has since been fully upheld by two tiers of the Swedish judiciary, including the Swedish Supreme Court.

The claims originally arose out of Kazakhstan's seizure of the Stati parties' petroleum operations in 2010. The Stati parties acquired two companies in 1999 that held idle licenses in the Borankol and Tolkyn fields in Kazakhstan. They invested more than US$1 billion over the ensuing decade to turn the companies into successful exploration and production businesses. By late 2008, the businesses had become profitable and had yielded considerable revenues for the Kazakh state. Just as the Stati parties expected to start receiving dividends, more than half a dozen government agencies carried out multiple burdensome inspections and audits of the companies' businesses that resulted in false accusations of illegal conduct directed at the Stati parties and their Kazakh companies, including criminal prosecutions of their general managers on false pretenses. Kazakhstan's actions challenged the Stati parties' title to their investments, subjected them to hundreds of millions of dollars in unwarranted tax assessments and criminal penalties, and ultimately led to the seizure and nationalization of their investments by Kazakh authorities in July 2010.

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