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U.S. court refuses to halt discovery against Kazakhstan assets held around world

Christian Fernsby |
The U.S. District Court for the District of Columbia has rejected for the second time Kazakhstan's motion to halt further discovery in Stati et al. v. Rep. of Kazakhstan, noting that the court will no longer tolerate Kazakhstan's continued stonewalling of discovery efforts.

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Topics: U.S.    KAZAKHSTAN   

The Stati parties are seeking discovery of Kazakh assets as a result of Kazakhstan's refusal to honor a final US$535 million judgment against it.

At an Aug. 13, 2019 hearing on Kazakhstan's latest effort to avoid discovery, the court observed that Kazakhstan "has taken the position that it simply will not comply with the Courts' expectations" that discovery proceed.

Noting that the court has the "full panoply of remedies and sanctions available" if needed, the court indicated that it no longer would tolerate Kazakhstan's refusal to provide discovery.

As to Kazakhstan's request that the court stay discovery into the country's U.S. and non-U.S. assets that may be subject to attachment in satisfaction of the court's judgment, the court summarily stated that "simply put, there is no authority for it." The court ordered Kazakhstan to produce documents identifying its U.S. and non-U.S. assets by no later than Nov. 8, 2019.

Anatolie Stati, CEO and shareholder of Ascom Group, one of the plaintiffs to the action, said: "This ruling demonstrates that U.S. courts are not going to put up with Kazakhstan's continuing bad-faith tactics to avoid compliance with its international treaty obligations – obligations that have been long converted into a final and binding U.S. domestic court judgment."

The U.S. court's ruling is the latest development in the Stati parties' long-running battle to enforce the award for Kazakhstan's violations of the investor protection provisions of the Energy Charter Treaty.

In December 2013, a Sweden based arbitration tribunal found that Kazakhstan had violated international law by failing to treat the Stati parties' investments in Kazakhstan fairly and equitably, and awarded the Stati parties more than US$500 million in damages, legal costs, and interest.

The award has since been fully upheld by two tiers of the Swedish judiciary, including the Swedish Supreme Court.

The claims originally arose out of Kazakhstan's seizure of the Stati parties' petroleum operations in 2010.

The Stati parties acquired two companies in 1999 that held idle licenses in the Borankol and Tolkyn fields in Kazakhstan.

They invested more than US$1 billion over the ensuing decade to turn the companies into successful exploration and production businesses.

By late 2008, the businesses had become profitable and had yielded considerable revenues for the Kazakh state.

Just as the Stati parties expected to start receiving dividends, more than half a dozen government agencies carried out multiple burdensome inspections and audits of the companies' businesses that resulted in false accusations of illegal conduct directed at the Stati parties and their Kazakh companies, including criminal prosecutions of their general managers on false pretenses.

Kazakhstan's actions challenged the Stati parties' title to their investments, subjected them to hundreds of millions of dollars in unwarranted tax assessments and criminal penalties, and ultimately led to the seizure and nationalization of their investments by Kazakh authorities in July 2010.

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