Belgian Court of Appeal deals blow to Moldovan oligarchs Anatolie and Gabriel Stati

Belgian Court of Appeal deals blow to Moldovan oligarchs Anatolie and Gabriel Stati

On 16 November 2021, the Belgian Court of Appeal handed down what the Republic of Kazakhstan described as a “ground-breaking victory” in its prolonged legal battle with a pair of Moldovan oligarchs, father-and-son duo Anatolie Stati and Gabriel Stati. “We will not rest until the Statis and all of their co-conspirators are brought to justice”, Kazakh justice minister Marat Beketayev declared in the wake of Tuesday’s landmark verdict, holding the Moldovan businessmen out as an example of investors who abuse the international arbitration system in order to make a profit and “extract money” from emerging economies.

The recent ruling, in which the Brussels court determined that the Statis “committed acts which qualify as fraud and deception” and decided that this fraudulent scheme warranted the reversal of a lower court order granting recognition and enforcement to a $530 million arbitration award the Statis had obtained, is certainly a pivotal development in a dispute that has dragged on for years and sparked legal proceedings in six countries.

The thorny case dates back to 2010, when Kazakhstan terminated contracts for two oil and gas companies controlled by the Statis and based in Mangistau province, in western Kazakhstan. The Moldovan businessmen brought a case against Kazakhstan before the Arbitration Institute of the Stockholm Chamber of Commerce under the auspices of the Energy Charter Treaty, an international agreement which Kazakhstan signed in 1994. In 2013, the Swedish institution decided to award the Statis compensation of over $500 million.

Kazakhstan has never paid out the arbitration award, maintaining that the Statis engaged in a fraudulent scheme which means that the award should not be recognised and enforced and opening annulment proceedings at Sweden’s Svea Court of Appeal. The Statis, for their part, have embarked on an earnest effort—apparently funded by US hedge funds and investment bankers seeking a cut of any profits— to seek the enforcement of the award granted by the Swedish tribunal, and the past years have seen both sides of the dispute repeatedly suing and countersuing each other in multiple jurisdictions in the United States and Europe.

Early developments in the legal battle seemed to favour the Moldovan investors. In December 2016, the Stockholm court did not rule on the merits of Kazakhstan’s allegations of fraud and refused to annul the award on the basis of the Statis’ claim that their alleged fraud did not violate concepts of Swedish public policy. In late 2017, meanwhile, the Statis obtained an exequatur order, subsequently confirmed by the Belgian Court of First Instance in December 2019. As the Moldovan oligarchs sought to enforce the arbitration award, some of the assets of Kazakhstan’s National Fund, held at the Bank of New York Mellon, were frozen, further escalating the legal battle.

More recently, however, analysts have judged that the “pendulum is swinging in favour of [Kazakhstan]”—a tendency which has been decisively confirmed by the Belgian Court of Appeal’s latest ruling. Kazakhstan has argued that it discovered new information, both during the annulment proceedings in Sweden and following the December 2016 ruling, pointing to a massive fraudulent scheme which the Statis were supposedly engaging in both during their business activities in Kazakhstan and their efforts to obtain the arbitration award.

The Brussels court’s recent ruling seems to vindicate many of Nur-Sultan’s claims. The Court of Appeal annulled the 2017 exequatur in its entirety, finding that Kazakhstan’s application to set aside the enforcement of the arbitration award was well-founded given that the Statis’ “fraud and deception” had a material impact on the award and the way it was granted.

In particular, the Court of Appeal focused on the deceitful actions which the Statis apparently carried out concerning their financial statements. The Statis, the Brussels-based court found, deceived their external auditors, KPMG, at the time that the auditing giant was finalising its audit reports on the financial statements of a number of companies active in the Statis’ project in Kazakhstan, including Tristan Oil.

Serious concerns had emerged over the KPMG audit reports, with the auditor withdrawing eighteen of its audit reports, covering three years of financial statements for companies controlled by the Statis. KPMG took the highly unusual step in August 2019, after the Statis’ former CFO testified under oath in the United States that the Moldovan investors had lied to KPMG while it was auditing their financial statements. Amidst these concerns that its audit reports had been based on manifestly false representations made by the Statis, KPMG cancelled the reports and warned that “one should not rely” on the withdrawn audit reports.

In its November 16 ruling, the Belgian Court of Appeal acknowledged the wide-ranging effects of the Statis’ deception of KPMG. The Statis repeatedly leaned on the withdrawn audit reports in their legal battles, including in the proceedings before the Stockholm court which led to their being granted the arbitration award. As a result, the Court of Appeal found, the arbitral tribunal “relied on evidence that is now known to be inaccurate and materially misstated”.

This false evidence, the Court of Appeal argued, had a significant impact on the arbitration award that was decided. “Due to the manoeuvring of the Statis,” the Belgian court determined, “the arbitrators were misled. They were not able to find out the real financial situation of the Statis, which was essential to adjudicate the matter […] Kazakhstan was deprived of its right to be heard.”

In a further blow to the Moldovan businessmen, the court found that their initial investment in Kazakhstan was “done in bad faith”, agreeing with the Kazakh side that the Statis had in fact funnelled “hundreds of millions” into companies presented as independent third parties but actually controlled by the Statis.

With the finding that the arbitration award in the Statis’ favour was obtained through fraud and deception, many of the Statis’ avenues to enforce the award may close, as holds are lifted on property of the Kazakh state such as the National Fund assets held by BNY Mellon.

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