1. What are common forms of corruption in Kazakhstan?
The TRACE Matrix, which measures business bribery risk, ranks Kazakhstan 141st out of 197 countries and gives an overall high risk score of 68 – citing a high risk of intensive interaction with the government, a high expectation of bribes and high regulatory burden. According to the World Economic Forum’s Global Competitiveness Index (2014–2015), corruption was a constraint to doing business in the country, and Kazakhstan ranks 80 th out of 144 countries for bribes and irregular payments.
Petty corruption, such as facilitation payments, is an issue in Kazakhstan. According to the World Bank Enterprise Survey for 2013, approximately 34 per cent of respondents stated they were expected to give gifts to obtain an electrical connection and almost 30 per cent were expected to give gifts to obtain an import license. Bribe demands to expedite customs clearance are also common. In general, the process for importing or exporting is costly and time-consuming. Companies have complained of the irregular application of the customs code and unclear documentation requirements.
2. How do these corruptive practices impact foreign businesses?
The prevalence of petty corruption, including facilitation payments, means that foreign companies face the risk of being asked to pay a bribe when engaging government officials to secure routine government services. Facilitation payments are not permitted under the U.K. Bribery Act and other anti-bribery laws. Canadian companies are subject to Canada’s foreign anti-bribery law, the Corruption of Foreign Public Officials Act (CFPOA), which prohibits Canadian companies and individuals from bribing foreign government officials. The current exception for facilitation payments under the CFPOA is set to end, making any such payments a risk under that law, as well.
3. In what sectors are corruption risks most prevalent?
Generally, businesses that contract directly with Kazakh government are more vulnerable to corruption. The government has challenged contractual rights and even interfered in foreign-company operations with respect to public procurement. Approximately 19 per cent of respondents to the 2013 World Bank Enterprise Survey said they were expected to give gifts to secure a government contract. The Kazakh government has announced that it will create a single operator for public procurement, as part of its Anti-Corruption Strategy introduced in 2014.
Companies in the oil and gas sector face particularly high risk. Oil and gas drive Kazakhstan’s economy, accounting for 80 per cent of exports and roughly 50 per cent of government revenues – with more than 1.5 million barrels of oil exported each day. The industry has attracted a large percentage of the country’s billions of dollars in foreign investment, and Kazakhstan’s Oil and Gas Ministry grants hydrocarbon rights following a bidding process or direct negotiations. Interactions with foreign officials raise the risk of corruption. For example, a consortium of four foreign companies allegedly paid USD $4.1 million to a consulting firm, after officials at the state-owned oil company demanded the payment before the contract was awarded. Entities associated with Baker Hughes allegedly made payments of nearly USD $1.1 million to an agent, at the direction of an official at the state-owned oil company.
4. How can foreign companies reduce their risks and exposure to corrupt business practices?
Foreign companies should scrutinize any interaction with the government and pay careful attention to gifts and cash allowances, or any other unusual payment. Foreign companies should also be careful of third-party liability stemming from local business partners. Many foreign companies choose to establish joint ventures with local operating entities. While third parties can be essential for navigating local laws and practices, they also increase the risk of inappropriate payments. Foreign companies should conduct thorough due diligence into all third parties they seek to engage in their operations. Companies should also monitor those third parties to ensure they are not violating any anti-bribery laws.
Companies can also work with TRACE Certified firms, which have completed a rigorous due diligence process based on international standards, including training and continuous daily screening against international sanctions and enforcement lists.
5. What anti-bribery compliance support is available in Kazakhstan?
There are a number of resources available to companies seeking compliance support while operating in Kazakhstan. The Kazakh government maintains a web portal that provides information on starting and liquidating businesses, taxes, licensing and public procurement. Additionally, organizations like TRACE, Transparency International and the Business Anti-Corruption Portal can provide companies with access to resources on anti-bribery compliance, wherever they are located.
Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
This Q&A article was originally produced for ExportWise.ca, Export Development Canada’s online magazine.