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US Court Dismisses RICO and Fraud Claims by Kazakhstan

Saturday 6 April 2019

NEW YORK (PRNewswire) — The U.S. District Court for the District of Columbia on March 30, 2019 resoundingly dismissed as “ill-advised” and “far-fetched” a lawsuit brought by the Republic of Kazakhstan against Anatolie Stati, Gabriel Stati, and the two companies they own, Ascom Group, S.A. and Terra Raf Trans Trading Ltd.

Kazakhstan’s lawsuit alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), and the common law torts of fraud and civil conspiracy in connection with the Stati parties’ efforts to recover compensation for assets that Kazakhstan expropriated several years ago. Specifically, Kazakhstan claimed that defendants obtained an arbitral award from the Stockholm Chamber of Commerce in December 2013 in Sweden through fraud, and that defendants’ subsequent efforts to use legal process to enforce and collect on that arbitral award have been unlawful.

The U.S. Court granted the Stati parties’ motion to dismiss the suit, noting that a “RICO civil suit is not a vehicle to challenge non-frivolous litigation, or in this case, a valid and final foreign arbitral award”. The Court held that the “suit is yet another attempt to relitigate the underlying arbitral award. Whatever fraud Kazakhstan contends occurred before and during the SCC arbitration more than eight years ago, it had a full opportunity to raise those issues in the appeals process in Sweden and its allegations were rejected.”

The Court concluded that “casting defendants’ enforcement proceedings now as an unlawful ‘pattern of racketeering activity,’ is an improper use of the auspices of this Court to revive and prolong a dispute that is over.”

Anatolie Stati, CEO and shareholder of Ascom Group, one of the defendants to the action, said: “We welcome the latest judgment of the U.S. Court. It represents a very clear and strong rebuke to the dilatory and bad faith litigation tactics continuously pursued by the Kazakh Government. The government has deployed extraordinary financial, political and diplomatic resources with a view to avoiding honouring its binding international treaty obligations. Investors in Kazakhstan should take note of the country’s repeated failure to honour the investment protections that it claims it provides to foreign investment.”

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. A tribunal constituted under the auspices of the Stockholm Chamber of Commerce found that Kazakhstan violated its international obligation to treat the Stati parties’ investments fairly and equitably and awarded the Stati parties more than $500 mln 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 $1 bln 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 2010.

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