Guy Norton in London -
Michael Nadel, former chairman and majority shareholder of AsiaUniversalBank (AUB), Kyrgyzstan's one-time leading bank, is not a happy man. In recent months, he's been stripped of his prized asset and accused variously of embezzlement, money laundering and collaboration with the regime of former president Kurmanbek Bakiyev that was toppled in a bloody revolution in April.
AUB, which accounted for more than 40% of total banking assets in Kyrgyzstan before the political turmoil struck the country, was nationalized in June and in August the government announced that it would be consigned to the history books, with its operations to be assumed by a new institution.
Meanwhile, former shareholders of KyrgyzPromstroibank (KSPB), which AUB took over for $1.5m in 2008, have staged a series of protests outside the country's justice ministry in the capital Bishkek, claiming that AUB, acting in cahoots with the ousted president's younger son Maksim Bakiyev, acquired KSPB at a fraction of its real value.
Suffice to say, Nadel who held a 66% stake in AUB, is more than a little peeved by the dramatic reversal of fortune at the institution he bought into in 1998 and spent more than a decade building up into the country's leading bank. He strenuously denies the allegations made against him. "On an individual level, I would say that when someone has worked hard for 10 years to create a successful business, it is simply wrong to take it away from them by using false allegations. Not only did I lose my main business, my name has been smeared by unfounded accusations," Nadel tells bne. "I invested heavily in Kyrgyzstan and continued my work there because I believed in the future of the country and that there were strong investment protection laws. Obviously I was wrong. It's a state of shock when everything I and my colleagues had been creating for 10 years collapsed."
Nadel goes onto claim that the fate of AUB, which he says was a model of corporate and social responsibility, should act as a warning to international investors looking to do business in Kyrgyzstan. "AUB was one of the most successful and transparent entities in Kyrgyzstan. It was one of the biggest taxpayers in the country and the only entity to have a rating from an international rating agency. If an entity like AUB can be raided and destroyed, what kind of message about the Kyrgyz business and investment environment does that send to international investors?"
Nadel claims that the fate of AUB will for many years serve as a very large red flag to anyone who considers doing business in Kyrgyzstan. "I would certainly advise anyone against working with Kyrgyzstan," he says.
And that's not a message Kyrgyzstan's leaders wish to see going out as the country prepares to go to the polls on October 10 to vote for a new parliament. Political tensions remain high and there have been attempts by politicians to destabilize the situation, at times using inflammatory language and exploiting regional and ethnic differences, which since the April revolution have several times exploded into violence. Getting the economy moving again and attracting foreign investment is key to keeping a lid on these tensions and preventing civil war from breaking out.
Settling old scores
Needless to say Nadel is dismissive of claims that the bank acted as a front organisation for the Bakiyev regime in general and for the president's son Maksim in particular.
The interim government that took over after Bakiyev was ousted has charged that the bank was only able to grow so big and so fast because of political connections to the Bakiyev regime. "Truth be told, long before Bakiyev came to power [in 2005], AUB was already the biggest corporate bank in the country. I was and still am proud of what AUB was able to achieve. AUB had the best local and international talent working for it. If it were in another country, the bank would have been praised as the flagship business whose image could be leveraged to attract further investment into the country. However, in Kyrgyzstan AUB has become a scapegoat."
He stresses that whatever politicians say now, AUB was no more affiliated with the president's office that any large financial institution in any developed country. In fact, had the alleged close ties with the presidential family actually existed, then AUB would've been much bigger than it actually was.
In terms of specific allegations, Nadel rejects the charge that major corporations were forced by Bakiyev to bank with AUB. "Absolutely not. If you were a major corporate, would you choose a bank with the largest branch network, most advanced IT systems, most correspondent banking relationships and proven track record of seamless customer service, or would you rather go with an equivalent of what KPSB was before we acquired it - a bank with one computer per branch and a fax-based inter-branch communication system which required three days to clarify even the simplest clients' requests?"
Nadel also disputes the claim that Maksim Bakiyev was ever a shareholder in AUB "Absolutely not. He has never been involved in the bank's operations and, truth be told, had no interest in the bank at all."
A further allegation against the bank is that it connived in transferring ill-gotten gains abroad once violence street protests against the former president broke out on April 6. Nadel says that the transfer offshore of $200m worth of funds was a natural response by legitimate AUB customers. "One has to remember that this is the second revolution in Kyrgyzstan in five years. The future of the country was uncertain and our clients were scared. We remember seeing the same outflow dynamics during the 2005 revolution. In hindsight, clients were right to panic. Those who owned their businesses through offshore companies and did not take their money out of the bank have been unable to access their assets since April 8. Imagine a business unable to access its working capital for six months? It was clients who withdrew their money and, I believe, it was a normal reaction."
Nadel is equally contemptuous of accusations of money laundering and embezzlement levelled against himself and AUB. "They are ridiculous. AUB was one of the most transparent banks in the country and in the region." He points to the fact that Kroll Associates had attested that AUB's anti-money laundering and compliance procedures not only satisfied but exceeded international requirements and best practices. "If anyone is to be accused of embezzlement, I would like to pose an open question as to how a bank which was audited and confirmed by the new regime to have more assets than liabilities suddenly suffers a tremendous loss in assets and is pushed towards technical bankruptcy, which served as a pre-text for nationalization. This, in my opinion, is embezzlement."
Lack of dialogue
Nadel says that trying to establish any type of dialogue with the new regime in Kyrgyzstan has proved impossible. "I have tried to establish avenues of communication, but it was unclear who was in charge of the new regime. Those who appear to be in power are not the ones who wield the true power. Everything seems to be hectic and of course the smear campaign by the new regime against AUB and myself personally has not helped in establishing any form of communication," he says. "Furthermore, their actions clearly state - we don't want your business here, we just want your money. Why bother trying to make the bank operate the way it used to when it can be easily nationalized and then simply sold?"
Nadel says that he intends to contest the seizure of AUB in the international courts as he does not believe he will receive a fair hearing in Kyrgyzstan. "I do not see a way forward in Kyrgyzstan, appealing for justice in Kyrgyzstan is useless. One only has to look at some of the procedurally and legally incorrect judgments which have been made by Kyrgyz courts since the revolution. The very procedure of AUB's nationalisation is illegal even according to the just-adopted constitution, to say nothing about how illegal it was if we look at the previous one. Given the circumstances, I am now forced to seek justice in the only way which has been left open to me - the international courts."
With regard to the future of the banking sector in Kyrgyzstan, Nadel claims that recent events have destroyed both local depositors' and international investors' confidence. "The population has lost all confidence in the banking sector, with banking penetration in the country dwindling to almost nothing. It will take years and years to restore people's confidence in banks. As for international interest in the Kyrgyz banking sector, it was slowly starting to develop, but the risk profile of the country was seen as relatively high - one of the first questions I would be asked by the international community was about the stability of the country in light of the previous revolution of 2005. Having suffered such a bloody and disruptive second revolution, the international community's interest in the Kyrgyz banking sector has not quite been eradicated but, I would say, pushed back to its embryonic stage. The nationalization of AUB, I believe, is one of the crucial factors in the destruction of international investors' confidence in the country. It's not only me who thinks this way - any financial journalist in Kyrgyzstan says the same thing."
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