07ASTANA1642, KAZAKHSTAN: MONEY LAUNDERING ACCUSATIONS COMPLICATE EFFORTS

WikiLeaks Link

To understand the justification used for the classification of each cable, please use this WikiSource article as reference.

Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #07ASTANA1642.

Reference ID	Created	Released	Classification	Origin
07ASTANA1642	2007-06-15 08:01	2011-08-30 01:44	UNCLASSIFIED	Embassy Astana

VZCZCXRO6305
RR RUEHAST
DE RUEHTA #1642/01 1660801
ZNR UUUUU ZZH
R 150801Z JUN 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 9800
INFO RUEHAST/USOFFICE ALMATY
RUEHC/SECSTATE WASHDC//SCA COLLECTIVE/ 9801
RUEATRS/DEPT OF TREASURY WASH DC//IET//

UNCLAS SECTION 01 OF 02 ASTANA 001642 
 
SIPDIS 
 
STATE FOR INL/AAE (ALTON), INL/C, SCA/CEN (O'MARA) 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: SNAR ASEC PREL KCOR KCRM PREL KZ
SUBJECT: KAZAKHSTAN: MONEY LAUNDERING ACCUSATIONS COMPLICATE EFFORTS 
TO TAKE EURASIA GROUP PUBLIC 
 
¶1. Summary:  The Eurasian Natural Resources Corporation (ENRC), an 
enormous Kazakhstani metals conglomerate, has been preparing since 
2006 to list on the London Stock Exchange.  A criminal investigation 
by Belgian authorities of alleged money laundering by the three 
billionaires who control 54.6% of ENRC has become an obstacle to the 
initial public offering (IPO), however.  PricewaterhouseCoopers 
advised the three primary shareholders to quit the company board in 
light of the allegations.  According to press reports, the company's 
management has postponed the IPO until the second half of 2007 to 
address the auditing firm's recommendations.  End summary. 
 
---------- 
BACKGROUND 
---------- 
 
¶2. The Eurasian Natural Resources Corporation (ENRC) is controlled 
by majority shareholders Patokh Shodiev, Alidjan Ibragimov, and 
Aleksandr Mashkevich. ENRC is a holding company incorporating large 
Kazakhstani metallurgical and mining operations, which were formerly 
part of the Eurasian Industrial Association.  The company reports 
that its activities account for 5% of Kazakhstan's GDP.  ENRC 
produces a range of commodities including coal, iron ore, manganese 
and bauxite.  According to a press release issued by ENRC, it is the 
world's third-largest producer of ferroalloys, with control over a 
quarter of global chromium reserves. 
 
¶3. In spring 2006, the trio appeared on Forbes magazine's "richest 
people" list with a net worth of $2 billion each.  The three 
billionaires together hold a 56.4% stake in ENRC; the Kazakhstani 
government owns 24.8%, with 18.8% held by Vladimir Kim, chairman of 
Kazakhmys, another Kazakhstani mining company. 
 
¶4.  Shodiev, known as the "Metallurgical King" of Kazakhstan, has an 
ambitious plan to prepare ENRC for an IPO and join the ranks of 
three largest metallurgical companies listed on the London Stock 
Exchange (LSE).  In 2001 he invited Johannes Sittard, a former 
manager at Mittal Steel, and Dutch lawyers to put ENRC's accounting 
in order.  Under Sittard's management, ENRC is expanding into nickel 
deposits in the Balkans and cobalt in Zambia. 
 
¶5. ENRC, with a sales volume of $2.9 billion, is currently valued at 
$1.5-2 billion.  The Kazakhstani press has speculated that if ENRC 
sold shares on Kazakhstani Stock Exchange, the company's value might 
increase to $3 billion.  According to international experts, a 
listing on the LSE may increase the valuation to $5 billion or more. 
 
 
------------------------------------------ 
METAL MAGNATES ACCUSED OF MONEY-LAUNDERING 
------------------------------------------ 
 
¶6. The "Megapolis" newspaper reported that Shodiev, Ibragimov and 
Mashkevich are being investigated related to "dirty" funds used in 
some property transactions in Belgium.  The paper reported that the 
Belgian law enforcement began an investigation in 1996, and in July 
2001 a judge authorized a freeze of several Jersey bank accounts. 
In an April 2007 hearing at the Brussels Court of First Instance, 
the judge adjourned the case until June 21. 
 
¶7. The trio also appears in other investigations in Belgium.  One of 
the investigations regards a dispute with a Geneva industrial group 
"Trans-World" run by billionaire brothers David and Simon Reuben, 
but has not resulted in any prosecutions.  In 1997, the three were 
also investigated for money laundering and were witnesses in a 
government audit of Belgian industrial group Tractabel. 
 
----------------------------------------- 
BILLIONAIRES TO BE BOOTED FROM THE BOARD? 
----------------------------------------- 
 
¶8. As a result of a pre-IPO audit of ENRC requested by the 
government of Kazakhstan in its capacity as a minority shareholder, 
PricewaterhouseCooper (PwC) advised Shodiev, Ibragimov, and 
Mashkevich to quit the company's board because of the outstanding 
money laundering allegations against them.  The confidential 16-page 
draft document obtained by the Financial Times highlighted areas 
that the company needs to address ahead of an initial public 
offering later this year.  The three principal shareholders deny the 
allegations.  According to the Financial Times and Kazakhstani 
press, the main shareholders have not yet decided whether to accept 
PwC's recommendation that they should not quit the board and 
therefore board membership for the IPO has not been finalized. 
 
¶9. Comment:  Although the current ENRC shareholders reportedly do 
not see the Belgian investigation as an obstacle to a London IPO, 
the publicizing of the money laundering charges and of 
PricewaterhouseCooper recommendations will likely force them to take 
at least some steps to improve corporate governance before taking 
 
ASTANA 00001642  002 OF 002 &#x
000A; 
 
the firm public.  End comment. 
 
ORDWAY

Wikileaks