Tajikistan, the poorest country to emerge from the Soviet Union, has one economic asset of note – Talco, an aluminum smelter that, in a good year, pulls in hundreds of millions of dollars. For years, the state-owned company has been notoriously non-transparent. Now, a seven-year legal battle with the world’s largest aluminum maker, Russia’s Rusal, has produced court and bank records that reinforce suspicions that Talco’s profits have benefitted relatives of the Central Asian country’s president.
In a region where nepotism is more the rule than an exception, this news is unlikely to cause outrage among Tajiks. But the legal proceedings show how difficult it can be to hide sensitive information in a globalized financial world. And, spun the right way, the revelations could give Moscow a new lever of geopolitical influence over Dushanbe.
State Money for Private Planes
Thus far, the most eye-popping numbers from Talco-related bank records concern jet planes: The documents – handed over to Rusal by order of a New York federal court earlier this year – seem to indicate that almost $100 million of the aluminum smelter’s revenues went to buy two Boeing 737s to start a private airline reportedly controlled by the president’s brother-in-law. Around the time of the purchase, Tajikistan was coercing its citizens to make monthly contributions for a massive hydropower dam project that the state needs, essentially, to sate Talco’s appetite for electricity.
The state-mandated fundraiser for the dam, called Rogun and still unbuilt, took place in 2010, forcing many Tajiks – including teachers, who made about $30 to $40 per month at the time – to hand over half their salaries for several months. The effort raised some $180 million before foreign donors warned that it was increasing hunger and threatening recession.
The money for the two planes – over $96 million, according to Deutsche Bank records shown to EurasiaNet.org by Rusal representatives – was paid between July 2008 and November 2010 out of a bank account belonging to CDH Investments Corporation. CDH, registered in the British Virgin Islands, acted until 2007 as the aluminum factory’s middleman and beneficiary, buying raw materials for the plant and selling its aluminum output at a hefty profit.
Most of the Boeing payments are marked “for Somon Air,” Tajikistan’s first privately owned airline, which holds the best slots at Dushanbe International Airport and has largely squeezed out state-run carrier Tajik Air. Matched with data from Planespotters.net, serial numbers used in the bank transfers identify the 737-800s as still belonging to Somon Air.
Somon Air did not respond to multiple requests for comment on its acquisition of the planes, or about its ownership structure.
Both Somon Air and CDH, as well as the private bank that made the plane payments on CDH’s behalf, have been linked to one man: President Emomali Rakhmon’s brother-in-law Hasan Asadullozoda (né Sadulloev). As chairman of Orienbank, where CDH kept its money, Asadullozoda told the London High Court in 2008 that he controlled CDH and planned to invest its profits in "transport infrastructure" and tourism. Multiple US Embassy cables leaked by the anti-secrecy organization Wikileaks identify him as either owning or controlling Somon Air.
In a September 2009 cable, then US Ambassador Kenneth Gross wrote that Asadullozoda’s Orienbank owns the airline, which is “controlled by the president” and operated by Asadullozoda. Requests for a response emailed to Orienbank have gone unanswered.
In a subsection of that cable entitled “Slightly Less Stupid, as Corrupt as Ever,” Gross said the private airline had been set up on a “presidential whim” and had been a “comedy of errors.” The first two 737s, he wrote, were “hastily” purchased “to satisfy a political priority to establish a private airline” and initially could not be operated properly.
Talco’s chief information officer, Igor Sattarov, confirmed that CDH had bought Boeings for Somon Air at the government’s behest and invested its profits into other state “social programs.” He dubbed the airline “Tajikistan’s calling card.”
Sattarov called suggestions that Talco revenues were funneled into the private airline “absurd,” saying there was no formal relationship between Talco and CDH at the time; CDH had provided its services to Talco’s predecessor, TadAZ, before the plant changed its name in 2007. Nonetheless, in its January ruling, the US federal court considered the entities sufficiently closely linked to grant Rusal access to CDH’s bank records.
Today, attorneys for Rusal are combing those records to identify funds and property it can seize in lieu of a debt that the company maintains is over $360 million. “I’m waiting for the treasure map,” said a source close to Rusal, who also said the company is working on a legal case to take possession of the 737s.
Rusal and Talco: State-Sanctioned Love Affair Gone Sour
The relationship between Rusal, its predecessors, and the Tajik aluminum plant stretches back to the 1990s, interweaving the two enterprises’ commercial interests with their ties to political elites in their respective countries.
The current dispute began after a 2004 management change at the Tajik plant. During an ensuing, inconclusive battle in the London High Court, the previous management alleged people close to Rakhmon and Rusal engineered the takeover; Talco still says the previous management stole hundreds of millions of dollars. The two parties settled out of court, with legal fees reportedly totaling over $100 million.
The management switch ushered in a period of short-lived amity between Rusal and the Tajik aluminum plant, with Rusal subsidiaries enjoying lucrative supply and purchase contracts.
The relationship was bolstered by a 2004 promise from Russian President Vladimir Putin who pledged $2 billion in investment to Tajikistan, much of it ostensibly to build Rogun—the giant hydropower dam that Rakhmon speaks of with almost religious zeal. Kremlin-friendly Rusal was tapped to be effectively in charge of construction; in exchange, it was supposed to get a controlling interest in the aluminum plant.
By 2006, however, the Rogun-for-factory deal was falling apart, ostensibly over a dispute involving the dam’s height. In addition, the factory’s new management had more or less concentrated the production cycle in its own hands, using offshore partners both to supply raw materials and to sell the finished aluminum. Under this system, the state-owned plant had effectively become a subcontractor, processing alumina for a small fee and seeing little if any of the profits from sales of the final product. The profits – estimated at approximately $300 million a year in 2006-2008 – first went to CDH (until early 2007) and then to an entity called Talco Management Ltd (TML), also registered in the British Virgin Islands and still Talco’s main tolling partner. Talco’s Sattarov says the arrangement ensures profits stay in Tajik hands and protects the company from “barracudas” like Rusal.
After Rusal pulled out of Tajikistan in 2007, its subsidiaries Hamer Investing Ltd and Aluminum and Bauxite Company (Albaco) began arbitration in Switzerland, culminating last October with two wins. A Swiss tribunal ordered Talco to pay Hamer $275 million related to broken supply contracts dating back 10 years. Later, a court in the British Virgin Islands held up an older Swiss award for $70 million to Albaco. With interest as set by the courts accruing at nearly $45,000 per day, a Rusal spokesperson said, the company calculates Talco’s debt to its subsidiaries as of May 20 at $363 million.
Talco rejects the foreign court rulings, insisting the cases be heard in a Tajik court. The company says it has documentary evidence proving Rusal was using criminal schemes to bankrupt the Tajik plant and thereby eliminate a competitor. Rusal dismisses the accusations, pointing out that the Swiss tribunal rejected Talco’s $400 million counterclaim.
Fair Play Not Tajikistan’s Strong Suit
For now, Rusal has the upper hand in a legal battle fought largely in Western courts. In January, the federal court in New York’s Southern District gave the company the right to see dollar-denominated transactions not only for Talco but for the now-defunct CDH and the company currently fulfilling many of CDH’s former functions, TML. The fact that most dollar-denominated wire transfers pass through New York City gave the court the necessary jurisdiction.
Also in January, Hamer and Albaco filed a fraud and conspiracy action in the British Virgin Islands against TML and Talco, specifically naming Talco’s finance and commercial director, Sherali Kabirov. The case threatens to turn Kabirov, who sometimes travels on official trips with Rakhmon, into a wanted man.
Kabirov told EurasiaNet.org by email that Talco is eager to negotiate, ready “to find a joint commercial resolution” that would see Rusal return to Tajikistan.
Executives at Rusal, which posted a $3.2 billion loss last year, scoff at the notion of returning to Tajikistan and note that their company has had to mothball several factories in Russia. Moreover, several Rusal insiders say they do not trust their Tajik counterparts to negotiate in good faith or the Tajik court system to deliver justice.
A spokesperson for Rusal said on May 21 that the company will do whatever it can to implement the court orders, but has no intention of taking the case up in Tajikistan: “We do not believe that [Tajik] jurisdiction is likely to provide a fair and unbiased forum.” The spokesperson declined to be named, citing company policy.
Independent evaluations of Tajik governance dovetail with Rusal’s concerns. Tajikistan’s “legal system does not support effective enforcement, and systemically poor governance continues to undermine the impact of reform, imposing risk on any potential private investment,” the Asian Development Bank said in April.
Shortly after Rusal won its claim in Switzerland, Tajikistan’s tax police began investigating suspected wrongdoing at several properties in Tajikistan owned by companies close to Rusal CEO Oleg Deripaska, including the Hyatt Regency Dushanbe and a business center, Sozidaniye, where the World Bank has its offices. “The hotel is a hostage,” said the source close to Rusal, who asked for anonymity, being unauthorized to speak publicly.
A Talco official said the tax police are just following a lead into a tax-dodging scheme at the Hyatt. The hotel chain declined to comment through a London-based “reputation management” consultancy, Portland Communications.
The general impression that fair play is not Tajikistan’s strong suit is enhanced by the fact that President Rakhmon’s relatives hold senior positions in various lucrative government agencies. His son runs the Customs Service; his son-in-law is deputy finance minister; a nephew holds a senior position in the tax police.
Moscow’s Invisible Hand
For all the claims, counterclaims and court decisions, there is a sense that, if it so chose, the Kremlin could settle the struggle between Rusal and Talco. “We want our money. And we want the international community to know that this is a regime that doesn’t pay its debts,” said the source close to Rusal of its standoff with Talco. The only thing that could make Rusal back off, the source said, would be an order from the Kremlin.
Relations between Putin and Rakhmon tend to run hot and cold. The two struggled for years to agree on terms that allowed Russia’s 201st Motorized Rifle Division to keep its base in Tajikistan for another 30 years. In recent months, as Putin seeks to expand his economic-political bloc, the Eurasian Economic Union, through Central Asia, his deputies have stepped up efforts to coerce Tajikistan to join.
With Tajikistan on the fence, the Kremlin could use Rusal’s case and threats to publicize bank records as a “bargaining chip,” said a Dushanbe-based analyst, who spoke about the case on condition of anonymity, fearing harassment from authorities.
Moscow’s power to do that, according to several analysts, lies in its state-run media, widely watched in much of Central Asia. By themselves, any compromising materials exposed by Rusal’s bank investigation would be unlikely to anger the Tajik public, accustomed as it is to ostentatious displays of wealth by top officials. But a campaign to pillory Rakhmon on Russian television, signaling a shift in Kremlin policy, could certainly hurt him. This has happened before: When Putin ran out of patience with Kyrgyzstan’s then President Kurmanbek Bakiyev in 2010, a Russian media onslaught encouraged protestors to take to the streets; Bakiyev was ousted within days.
“If the information appears on Russian television, there will be a big response,” said the Dushanbe-based analyst. “If it’s just Asia-Plus [a local online news agency], people will not be surprised. Some will blame the West because Western money has helped fund these news outlets and say America is trying to start a new civil war.”
Click here for the second story in EurasiaNet.org’s two-part series on Talco.
David Trilling is Eurasianet’s managing editor.