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IMF joins UK High Court in corruption investigations of Tajik aluminium dealing.

“Now is the winter of our discontent made glorious summer by this sun of York”.

That’s the opening of the most vicious dynastic bloodbath on the English stage, spoken by the nastiest of Shakespeare’s royal villains — the hump-back plotter who becomes Richard III, for a short while.

Landlocked in the Pamir Mountains of Central Asia, the ruler of Tajikistan, Emomali Rakhmonov (aka Rahmon), has been desperately hoping for the sun to relieve the very worst winter in recent history for his country — the poorest of the former Soviet states. Instead, he has run into three international fireballs that have fuelled charges circulating in and outside Tajikistan, that its miseries stem, not from the weather, but from the disappearance of the country’s earnings to a tropical haven in the Caribbean.

Directly substantiating the latter, for the first time, is documentary evidence presented in the UK High Court on February 15, before Justice Tomlinson.

But worse was to come for Rahmon. On March 5, in an unprecedented default announcement, the International Monetary Fund (IMF) disclosed that the Fund board had discovered systematic financial misreporting by the National Bank of Tajikistan, and “noncomplying disbursements”. The IMF said it was ordering an immediate “special audit” of the state bank, and calling in a repayment of $47 million.

But this isn’t all. On March 14, a report from Bangkok cited the IMF as confirming that, in addition to the Washington audit, the Asian Development Bank (ADB) in Manila and other multilateral lenders to Tajikistan have begun investigating the apparent mis-accounting, and possibly fraudulent diversion, of about $500 million in loans intended to be channelled through the commercial banking system to the cotton sector, next to aluminium Tajikistan’s main line of business.

Mohsin Khan, head of the IMF’s Central Asia Department, is quoted as wondering: “Was it fraud, mistakes or some systematic policy? The country is going to have to work hard at re-establishing its credibility.”

Mineweb has reported allegations of corruption in Tajikistan’s aluminium, gold, and energy sectors before. The finger-pointing in every case extends towards the presidency, which, as IMF and World Bank documents have made clear, controls personally, or though extended family members, the key sources of wealth and cashflow — mainly from aluminium sales.

But the added significance of the High Court case, brought against a leading Tajik businessman Avaz Nazarov by the Rahmon-controlled Tajikistan Aluminium Plant (TadAZ, aka Talco), is that it also implicates the Oslo-based aluminium international, Hydro.

The last Mineweb news of Hydro’s problems included charges from members of the Norwegian parliament and public governance organizations in Oslo that Hydro is knowingly participating in the corrupt diversion of aluminium profits from Tajikistan to a British Virgin Islands front company called Talco Management: Hydro Aluminium in trouble over Tajikistan …

Answering Mineweb questions last November, the company said: “Hydro has a zero tolerance towards corruption and we are following Hydro’s guidelines in all parts of the world where we are doing business. We have spent a lot of time discussing issues concerning transparency and corporate governance with the World Bank and EBRD and other NGO’s. Our opinion is that it is better for the people of Tajikistan that we are involved in doing business in the country than not.”

A Hydro spokesman declined to provide details of the contracts it has with the Tajikistan aluminium plant, or with its BVI-registered affiliate, Talco Management. But he claimed: “Talco Management Ltd has also undertaken an obligation to be audited by an international recognised auditor. Such audit reports are to be displayed to the World Bank, EBRD and Hydro.”

Tajikistan audits are a screen, Khan of the IMF now concedes. “We were shown the balance sheet of the national bank and it had unqualified reports from PwC [PriceWaterhouseCoopers] in Rotterdam. PwC told us that these accounts were fine so we took them at face value. For several years we were just going by the audits.”

In the London court last month, texts of three agreements Hydro recently signed for its $600 million alumina and aluminium business in Tajikistan were presented for the first time. The documents had been ordered for disclosure by the court.

Three agreements were identified — one dated December 17, 2006, between Hydro and the aluminium plant; another dated December 27, 2006, between Hydro, the plant, and CDH — a BVI affiliate supervising the plant’s business; and a third, dated April 18, 2007, between Hydro, Talco Management, and Talco (the plant).

They reveal a huge diversion of funds to the British Virgin Islands (BVI). Judge Tomlinson confirmed his interpretation that the plant was losing $27 for every tonne of alumina sold by Hydro to the smelter, because it paid too much. The testimony also documents mounting losses for the plant, as profits from the sale of aluminium back to Hydro are diverted to the offshore company, instead of the plant. This was CDH in the British Virgin Islands, until it was replaced by Talco Management last April.

Another revelation in the court testimony — the BVI company is charging the smelter $12 million per month in legal fees for the court action in London. Herbert Smith is the firm of solicitors receiving this money.

When lawyers for the smelter and the BVI affiliate claimed they had been unable to find related documents, spelling out current accounting of the Hydro scheme, the judge declared: “there must have been a scheme document at some stage. It may be that it cannot be found, but there must have been a document…Looking at the reality of this, looking at the profit and loss account, there must be a fairly close relationship between TadAZ and CDH.”

When lawyers for Talco testifed in court that the missing scheme documents were not relevant, Judge Tomlinson retorted: “the longer the argument about it goes on, the more interested in it I become.”

The judge has ordered further disclosures in court by March 20. Thereafter, Hydro has been warned, company executives may be obliged to give testimony on oath.

Hydro’s defence is that it relies on internationally accepted audits of the $1.2 billion in cashflow which the smelter generates annually in Tajikistan. But this has been badly undermined by the IMF revelations this month, and by the prospect of further audit revelations relating to the missing half-billion dollars in cotton cash.

The European Bank for Reconstruction and Development (EBRD) has been a consistent backer of President Rahmon, and endorsed his agreements to run the aluminium plant, first with Russian Aluminium (Rusal), which EBRD also finances; and then for the past 15 months with Hydro.

But the EBRD refuses to disclose how much of its loan money is being repaid by Tajikistan; how much the accumulated debt now totals; and what the EBRD is doing to audit for possible diversion. Anthony Williams, an EBRD spokesman, claims that a recent cotton loan to Tajikistan, announced the day before the IMF announcement was published, was disbursed “without any state involvement”. Consequently, he said, concern for compliance with loan conditions does “not appear to be pertinent”.

The World Bank has also been signing and handing out substantial loans intended for Tajik cotton farmers, and these loan agreements contain explicit auditing and compliance conditions.

But as the evidence of wholescale cash stripping mounts in both London and Washington, World Bank officials don’t answer Mineweb questions about what they know, and what they are doing about it.

Makoto Ojiro is the Asian Development Bank’s director for Tajikistan; he’s new at his job, taking over just three months ago. But in that time Ojiro has been busy at the cash window handing out money. The planned ADB allocation of funds to Tajikistan for 2007 and 2008 is $70.23 million. Three new ADB loans were approved in the week of the IMF default announcement — on February 29, March 3, and March 7.

Ojiro did not say what the ADB investigation of the $500 million in missing funds has shown to date. Whether Ojiro intends to throw more good ADB money after lost, he seems unwilling to say.

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