The ‘Paradise Papers’ leak of 6.8mn confidential records related to offshore investment from Appleby, a Bermuda legal services firm, and leaked Kazakh banking data have revealed some of the inner workings of Meridian Capital, a major Kazakh investment and holding company with interests in oil and gas, banks, real estate, mining, aviation, transportation, and other areas, the Organised Crime and Corruption Reporting Project (OCCRP) revealed on November 5.
In particular, the data, presented in a report entitled “Kazakhstan’s Secret Billionaires”, exposes one of the primary causes behind the Kazakh government’s banking sector bailouts this year, including the approximately €6bn bailout green-lighted for the country’s largest lender Kazkommertsbank, which was recently bought by the country’s second biggest lender, Halyk Bank. The Kazakh banking sector’s bad loans may, it is feared, be compounding into an unexploded time bomb.
The leak reveals that [Meridian] used a large portion of the Kazkommertsbank’s deposits to fund project after project. This enabled them to grow quickly, and at little risk to themselves. According to an email from a central bank official, whenever a project failed, the bank owners and executives—who were also Meridian’s owners—would dump the losses onto the bank’s balance sheets.
Ownership and structure
The leaks also reveal that “in November 2002, a clerk at Appleby’s Bermuda office entered 10 names into an internal database. A Kazakhstani technocrat and nine bankers joined thousands of other businessmen, oligarchs, politicians, celebrities, and royals who wanted to benefit from the anonymity (and tax benefits) that offshore company ownership provides.”
Based on 2006 information, some of the initial co-founders of Meridian information are technocrat and head of the KazMunaiGas oil and gas company Sauat Mynbayev and his six co-owners Askar Alshinbayev, Yevgeniy Feld, Nurzhan Subkhanberdin, Nina Zhussupova, Azat Abishev and Ian Connor.
While Meridian’s profits end up in Bermuda, the leaks reveal it’s not where the group runs it operations. Meridian Capital CIS Fund and Meridian Capital International Fund, which make up the next layer of the group’s pyramid, are registered in another offshore zone, Cayman Islands.
The funds “in some cases” form the top of a chain of holding companies that lead to the actual businesses. One such example includes Meridian Petroleum, a “domestic oil and gas consultancy in Kazakhstan, [which is] owned by a Dutch company that is owned by a Cyprus company which, in turn, is owned by one of the Cayman funds,” OCCRP relates.
On the other hand, there are cases, when the name “Meridian” does not show up “anywhere in the publicly available chain of ownership of a given business”, where only its role as “beneficial owner” can only be found in obscure reports. “For example, TengizTransGaz, a major Kazakhstani transportation service provider, has no mention of ‘Meridian’ in any of its four layers of ownership,” the report notes.
Finally, there are cases where Meridian’s businesses are run by “nominee owners or by completely parallel structures which lead to separate, seemingly unrelated, offshore holdings”.
The group’s operations
“Meridian’s modus operandi is more about acquiring existing businesses than building them from scratch,” OCCRP reported. “Over the years, the company has operated and often sold for profit everything from oil and gas companies to glitzy malls to second-tier airports to vast transportation companies. The company’s shareholders have built a business empire, the full extent of which has been unexplored until today. OCCRP reporters spent months piecing through Meridian’s web of offshores to find the main areas from which it makes its billions.”
“Today, it controls over a dozen oil and mining fields around the world – from Alaska to Africa to Australia,” the report added.
Meridian also controls a major Kazakhstani rail transportation company that leases wagons and provides maintenance services to Kazakh state-run oil and gas companies.
“The group also made hundreds of millions in real estate, largely in Russia and Kazakhstan. When it sold the St. Petersburg Galeria Mall to Morgan Stanley for $1.1 billion, this was, at the time, the largest Russian real estate deal ever,” the report said. “Last year’s Panama Papers leak shows that it also acquired half of another Kazakhstani real estate empire, Capital Partners, which built and sold projects like Moscow’s Metropolis mall – one of the largest in the country – and the Ritz Carlton hotels in Moscow and Almaty.”