Belgian Appellate Court Upholds US$542 Million Freeze of Kazakhstan's National Fund Assets

Ruling Concerns US$545 Million Arbitral Award in Favor of Moldovan Investors

NEW YORK,July 1,2021 -- The Brussels Court of Appeal on June 29,2021,rejected the appeals brought by the Republic of Kazakhstan and the National Bank of Kazakhstan (NBK) against an attachment of Kazakhstan's state assets in Belgium. The attachment followed Kazakhstan's continued unlawful refusal to pay a US$545 million final and binding arbitral award in the Stati parties' favor in December 2013.

The Stati parties in October 2017 obtained an attachment of assets of Kazakhstan's National Fund on Belgian soil totaling US$22.6 billionheld by BNY Mellon (BNYM) in its capacity as the global custodian of the National Fund and managed by NBK in its capacity as the trustee manager of the Fund. The size of the attachment was later reduced to US$530 million in line with the then-value of the award and is presently estimated to equal US$542 million including accrued interest.

The Brussels Court of First Instance in May 2018 rejected Kazakhstan's and NBK's original petitions to lift the attachment. In its 44-page ruling,the Brussels Court of Appeal has once again sided with the Stati parties and dismissed the Kazakh parties' appeals against the first instance court ruling in their entirety by holding that "the concrete circumstances of the case contain sufficient indications of the existence of simulation"deployed by Kazakhstan in order to hide its assets beyond the reach of the award creditors.

The Court further found that "this is clearly a case of created appearances,which the Stati parties rightly contest by levying an attachment against the real holder of the bank accounts/funds" and that the underlying National Fund trust management agreement between Kazakhstan's Ministry of Finance and NBK is "a mere pretence to the outside world and third parties."

The Court also rejected all of Kazakhstan's and NBK's arguments relating to state immunity of the attached assets by holding that the relevant National Fund assets "are invested solely with a view to maximizing long-term returns" and as such "do not fall under the protection of state immunity."

Notably,the Belgian court also rejected Kazakhstan's and NBK's allegations that the award has been procured by fraud by noting that the award has been upheld twice by the Swedish Supreme Court and holding that the Stati Parties claims against the Republic are "certain,of a fixed amount and due."

Anatolie Stati,CEO and sole shareholder of Ascom Group S.A.,one of the award creditors,said: "We welcome this ruling of the Belgian court,which once again confirms the award creditors' entitlement to full compensation under the award and paves the way for the collection of the frozen funds from BNY Mellon. Meanwhile,the flagrant contempt with which Kazakhstan's Ministry of Justice treats the rule of law and foreign investors has created a dangerous legal precedent for the country,and it has already severely damaged Kazakhstan's international reputation and investment climate."

Egishe Dzhazoyan,partner at law firm King & Spalding,global litigation counsel to the Stati parties,said: "This is an historic win for the award creditors. It sets a landmark international precedent in the context of enforcement of arbitral awards against sovereign states. The ruling's significance is further underscored by the fact that it allowsrecourse against attached assets,which are nominally managed by a state's central bank and are held by an independent third party. We are pleased that the Belgian courts never lost sight of the fact that it was the Republic of Kazakhstan that has always been and remains the sole and true owner of the attached assets and accordingly the true creditor of BNY Mellon,as the court has found."

In addition to the Belgian attachment,the Stati parties have successfully secured and maintain the benefit of various other attachments of Kazakh state property in the Netherlands,Luxembourg and Sweden,with the combined total value of all attachments worldwide exceeding US$6.25 billion.

The Belgian court 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 twice by the Swedish Supreme Court.

The claims originally arose out of Kazakhstan's seizure of the Stati parties' petroleum operations in 2010. Starting from 1999,the Stati parties acquired two companies that held idle licenses in the Borankol and Tolkyn fields and Tabyl block 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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