The disputes at the Astana International Financial Centre (AIFC), the main new project of the republic, will now be adjudicated by a special court based on the English law.
Co-author: Sergei Baranovsky (Astana)
The International Court of Arbitration started its work on the basis of AIFC since the start of the year. The plan is to provide the participants of AIFC with a full package of judicial services according to global standards. The AIFC Finance Court with the involvement of former British officers of justice is headed by Judge Harry Kenneth Woolf.
According to the independent consultant on international human rights law, consultant of Amnesty International in Central Asia, Tatiana Chernobil, the establishment of the judicial system for financial sector means the weak judicial system recognised by the authorities. “I, as a citizen, am outraged by the fact that our government has initiated the establishment of court and dispute resolution rules different from those applicable to our citizens. This is an open manifestation of distrust in our judicial system by the authorities,” Chernobil commented.“Instead of making the judicial system really fair to all, the authorities have agreed to establish some special – “right one” – court for a special category of entities, leaving its citizens and business to make do with what they already have,” Tatiana Chernobil said.
“In the operations of AIFC, special emphasis is placed on the legal framework, and its performance is based on the principles, rules and common law of England and Wales, as well as the standards of internationally recognised financial centres with independent judicial system,” Gulshara Abdykalikova, state secretary of the Republic of Kazakstan, said at the conference.
The most prominent critics of AIFC are lawyers Arman and Valikhan Shaikenovs who have said to the media that the law on AIFC violates the unitary nature of the republic and the unity of the judiciary. Besides, the authorities of the Centre can issue acts regarding civil law, civil procedural, financial relations and administrative procedures. Thus, the legislative function will now belong not only to the parliament. Besides, the acts issued by the Centre will take precedence over the national laws. Lawyers are concerned with the contradiction with article 14 of the Constitution of the Republic of Kazakstan, which declares the equality of all before the law. The newly established court will review cases of the same category, yet according to the norms different from those applicable to the rest of the population of Kazakstan. [A court at AIFC] is the recognition of poor judicial system,” lawyer Johar Utebekov said. According to a prominent lawyer, Johar Utebekov, specialised in criminal cases, the existing judicial system poses many problems.[A court at AIFC] is the recognition of poor judicial system,” lawyer Johar Utebekov said.
“It’s sad enough that AIFC had to revise the constitution in favour of the court. It doesn’t meet our constitution and violates the unitary nature of our state. This judiciary system could exist in countries with federative or confederative system, yet not in the unitary state,” the lawyer said.
“Secondly, it should be noted that this means the recognition of poor judicial system. It means that companies, business entities cannot have their disputes resolved in the existing judicial system. The system could be developed in terms of arbitration, but reformists wanted to establish a separate court. In the long term, this provision can have consequences and be somehow used against the sovereignty of Kazakstan,” Utebekov said.
He noted that the problem of the existing judicial system was that a judgement tended to be a conviction.
“There are few judgements of acquittal in criminal cases; in civil trials, companies and individual often lose in cases vs. the state. There’s a problem of independence of judges: chief justice is god almighty in their court, although they should be first among equals,” lawyer said.
AIFC – An attempt to find “new petroleum”?
The authorities hope that “Astana” will resemble financial centres in London, Hong Kong, New York, Singapore and other world cities, where representative offices of banks and financial institutions are concentrate and various financial transactions and securities transactions take place. According to economists, a country has economic and political benefits when it has an international financial centre on its territory, provided that it is recognised by “prominent players” of other countries. According to official information, the AIFC concept takes into account the experience of global financial centres and includes all the best. Participants of AIFC will have tax benefits up to 50 years, simplified currency, visa and work regimes. The centre works on the basis of English law, which is frequently used in international transactions all over the world.
The constitutional law “On Astana International Financial Centre” adopted back in December 2015 says that the objectives of the Centre are to assist in attraction of investment to the domestic economy, to develop the securities market, insurance and banking services, Islamic financing in the republic. Back then prominent lawyers have found some conflicts with the existing laws, but it was nevertheless adopted.
Opening this project, the president of Kazakstan Nursultan Nazarbaev said that “AIFC is a new page in the history of independent Kazakstan. The Kazakstan model of the financial centre incorporates the best practices of global financial entities.” Economist Evgeny Dorekin said that AIFC is a promising project and can attract major participants. “Investors here are offered unprecedented privileges, which are not available in the countries of the former Soviet Union. They have tax exemptions, free of charge offices, and other benefits. Today Astana is a modern city that has air connections with the hubs of financial world, which is an advantage,” he told CABAR.asia. Also Dorekin added that “even now Astana is on the top ten financial hubs in Eastern Europe and Central Asia. The capital of Kazakstan appears in the ranking of the Global Financial Centres Index along with other large-scale financial centres.” Currently, 14 brokerage companies with assets amounting to 34 billion dollars work at the AIFC exchange. German Gref, chairman of board of the Russian Sberbank, evaluates the AIFC capabilities more realistically. In his opinion, there’s no point in placing shares for large companies until the exchange has sufficient liquidity. Chairman of board of the AIFC financial service regulation committee Steven Glynn said the AIFC will develop gradually and first it needs to become a regional centre, and then it will run beyond. Editor of Central Asian department of Sodruzhestvo press club Zhanna Tulindinova said that the AIFC is most likely an attempt to find “new petroleum” in the country.In recent years, major investors seem to leave the Kazakstan economy – Zhanna Tulindinova
She cited the managing director of the Centre, Kairat Kelimbetov, who said that in the next ten years Kazakstan, via AIFC, will raise extra 40 billion dollars, including 3 to 5 billion in the next five years.
However, we can speak now only about 2.5 billion dollar investments, which Kazakstan will receive as IPO of the five national companies: Air Astana, Kazaktelecom, Kazatomprom, KazMunaiGaz, and Kazakstan Temir Zholy.
However, in recent years major investors seem to leave the Kazakstan economy, including the oil sector. In the last five years, American ConocoPhilips and Norwegian Statoil left the oil sector of Kazakstan. Italian Eni and French Total closed some projects on the Caspian Sea.
“Foreign investors explain their escape from Kazakstan by the “political risks.” In their opinion, the authorities of Kazakstan turn the process of interaction with investors into a political issue,” Tulindinova said.
In 2016, the South Korean Samsung announced its withdrawal from the Balkhash Thermal Plant Construction project explaining it by “untimely receipt of licenses from regulatory authorities”, which made the project unfeasible.
“We see the “credibility crisis” between foreign investors and Kazak economic authorities, which is a possible consequence of voluntarism and opportunism by the latter.”
This publication was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with the financial support of the Norway Ministry of Foreign Affairs. The opinions expressed in the article do not necessarily reflect the position of the editorial team or a donor.