It’s one of the oldest moves in the political playbook: accuse your opponents of doing what you did.
The First Family of Azerbaijan has for years bilked the country’s coffers for hundreds of millions of dollars for personal gain. When Azerbaijan’s currency took a nosedive in 2015, the First Family made a huge amount of money off it through financial transactions made just days before the currency was devalued. (In America, that would be akin to insider trading).
To take the heat off themselves, the First Family is using a rising business star, one of the most well-respected and talented business executives in the region, as a scapegoat. Unfortunately, in an authoritarian regime, the President has complete power. Aliyev is using the power of the criminal justice system to undermine the businessman and take the spotlight off of his own crimes.
This is the true story. This is what really happened.
For years, the International Bank of Azerbaijan (IBA) was the largest bank in Azerbaijan. It was well-respected and did major business both inside and outside the country.
Resignation and arrest
In March 2015, Hajiyev resigned from his position. The resignation seemed rather sudden. Nine months later (December 2015), Hajiyev was arrested for “misappropriation, abuse of office, causing significant damage by fraud, [and] embezzlement through abuse of office and bribery” at IBA.
Indefinite jailing before trial
The state has held Hajiyev in pre-trial detention since his arrest.
- Hajiyev has filed appeals to higher courts for his release due to health reasons.
- All of his appeals have been denied.
- An Azerbaijani judge extended his detention by three months on three different occasions.
Oddly, the Azeri government has not investigated potential criminal activity against the actual bank.
(For an excellent article that argues that pre-trial detention is a human rights abuse, check out this Open Society Foundations piece.)
Criminal charges a “whiff of crony capitalism”
George Today wrote on July 7, 2016:
“The long list of charges against Hajiyev, the repeated extensions of his detention and the sudden fall from grace of this prominent, well-connected banker may have something to do with IBA’s loan portfolio for large infrastructure projects that carry a whiff of crony capitalism.”
Prison as political weapon
Azerbaijan is known for its authoritarian rule. Power is concentrated in the hands of the people who run the government. Mostly, that is the First Family: President Aliyev and his wife, Mehriban Aliyeva.
The Azeri government uses the criminal justice system as a weapon against political enemies. It is also used as a nifty hack to get out of trouble.
- By arresting and charging Hajiyev, and keeping him in jail (even while the others from his bank who were arrested have been set free), the Aliyev family is moving the spotlight off of themselves and onto Hajiyev.
- They accused him of stealing billions from the bank.
- However, in reality, the bank lost money due to a number of bad loans and unfavorable economic conditions.
- The country is an authoritarian regime, meaning the President has ultimate control over every part of the government, including the judicial system.
As Georgia Today put it, the case against Jahangir Hajiyev “smacks more of political score settling.”
International Bank of Azerbaijan
Jahangir Hajiyev’s bank had a rough time between 2014 and 2016.
Around 2014–2015, the bank’s loan portfolio took a large hit. The value of the Azeri currency (the manat) decreased by 34 percent, oil prices plummeted, and the bank had exposure to foreign currency denominated loans. As a result, the cost of the bank’s credit portfolio went up 20 percent. Foreign investors began to move money out, which worsened the bank’s financial position.
What many people in Azerbaijan and in the West don’t realize is that the Azeri federal government owned a 50.2 controlling stake in the bank. Once the bank’s financial position worsened, the state took over the bank and invested the equivalent of $1.91 billion U.S. dollars. The government fired hundreds of employees and arrested many others. High-ranking government officials were extremely angry about the bank’s performance and pinned blame on Hajiyev.
“They used the financial crisis as an excuse to remove him as CEO of the bank in a manner that ensures that he will never return and challenge their positions of power,” wrote Georgia Today.
Finance Minister Samir Sharifov
The country’s Minister of Finance, Samir Sharifov, is currently creating a new bank called Azturk. His goal is to turn Azturk into the top bank in the country (IBA was the largest bank in Azerbaijan before the government took control).
Sharifov is also related by marriage to President Ilham Aliyev. The Aliyev family owns significant amounts of at least 8 major banks in Azerbaijan, according to the Organized Crime and Corruption Reporting Project.
In April 2016, Wikinews reported the following about Sharifov:
“Azerbaijan Minister of Finance Samir Sharifov allegedly worked as a “triple agent” for Russian, Turkish, and US intelligence agencies, according to a report by Ukrainian online newspaper Gordon last Wednesday.”
In fact, up until Jahangir Hajiev’s arrest, the National Security Minister of Azerbaijan was Hajiyev’s brother-in-law. He was fired — “without explanation”, as RFE/RL put it — two months before Hajiyev was arrested.
One of Sharifov’s assistants is now running the International Bank of Azerbaijan.
2015 Azerbaijan economy trouble
In 2015, Azerbaijan’s currency, the manat, was devalued. The effect crippled the economy and severely hurt the middle and lower class people of the country.
First Family’s profit off the crisis
The First Family of Azerbaijan and one of their business partners, however, managed to earn over 100 million manat ($64 million in U.S. dollars) by making a number of financial transactions right before the manat was devalued.
Knowing about the devaluation in advance and making those transactions helped make the rich family even more rich, and at the expense of Azerbaijan’s poor population (families saw, on average, half of their life savings wiped out).
The First Family and their business partner own at least three banks (among countless other businesses) in Azerbaijan: Caspian Development Bank, AtaBank and Pasha Bank.
According to the Organized Crime and Corruption Reporting Project, “When the Central Bank switched to a floating rate for the national currency on Dec. 21, 2015, the manat lost value again, ending up at half its original value. In both devaluations, the president’s family and Kamilov [the First Family’s business partner] won.”
Billion dollar loss in finance sector
In sum, Azerbaijani banks lost over a billion dollars. The currency was devalued, and later Azerbajian’s Central Bank made it so that the manat’s value was no longer pegged to the U.S. dollar. The manat would float freely in the currency market. Four major banks went under.
In February 2015, the Central Bank depreciated the manat 33 percent against the dollar.
President Aliyev’s response to the Central Bank’s depreciation of the manat stunned Azerbaijanis. He said, “On the contrary, the manat is even stronger.” (Within a year, average Azeri citizens saw half of their life savings evaporate).
Looting the country’s cash (before it evaporated)
Three separate incidents suggest that the President Aliyev, his wife Mehriban Aliyeva, and their business partner rigged the game in three separate incidents. In each incident, the family made a massive amount of money using their advanced knowledge of the government’s currency manipulation.
Ashraf Kamilov is the First Family’s business partner.
Caspian Development Bank
Ashraf Kamilov owns a company called the Synergy Group. The company is a conglomerate with its hands in banking, hotels, agriculture, and technology.
First, Kamilov buys a small bank and renames it Caspian Development Bank.
- Kauther Bank was a small, single-branch bank in Azerbaijan until 2015.
- In December 2014, Synergy Group bought Kauther Bank.
- On January 26, 2015, Synergy Group renamed the bank to Caspian Development Bank.
Next, the bank lends nearly all its money to the giant state-owned oil company.
- Just three days later, the bank lent 80% of all its money (40.7 million manat, equivalent to $52 million USD) to the giant state-owned oil company SOCAR.
- The loan rate was high: 6 percent.
- The bank lending 80% of its capital violated serious banking regulations.
- The loan was unsecured.
- It is unclear why SOCAR needed a $52 million loan from a small bank when it had $1.8 billion USD cash on hand at the time of the loan.
Soon after, Azerbaijan devalues its currency. The bank wins big time.
- Three weeks later, the Central Bank devalued the Azerbaijan currency
- As a result, the Caspian Development Bank earned a profit of 13 million manat ($12.5 million USD) all from the deal with SOCAR.
- According to the Organized Crime and Corruption Reporting Project:
“After the second devaluation at the end of 2015 when the currency was floated, the earnings from that single loan tripled to 39.2 million manat (US$ 25.4 million). The SOCAR loan protected the bank and allowed it to make an end-of-year profit in 2015 of 8 million manat (US$ 5.1 million) rather than a loss like many other banks.”
- To keep this all in context: before Ashraf Kamilov and the Synergy Group bought the bank, the bank had not been making a profit for several years. Now it was suddenly making millions.
Synergy and AtaBank
Kamilov serves as senior vice chairman of AtaHolding.
AtaHolding is one of the largest conglomerate companies in Azerbaijan.
It is owned by the First Family. President Aliyev’s 16-year-old son, Heydar, is the actual owner.
Aliyev’s daughters Leyla and Arzu own a holding company in Panama. The holding company is a majority shareholder in AtaHolding.
A law firm based out of London, U.K. helped Azerbaijan’s First Family create a secret offshore company. According to an April 5, 2016 article in The Guardian:
The network of companies used by Azerbaijan’s ruling family and their associates are set out in the Panama Papers, a leak of the database of the offshore law firm Mossack Fonseca obtained by the German newspaper Süddeutsche Zeitung. It was shared by the International Consortium of Investigative Journalists in Washington with the Guardian, the BBC and other media around the world.
AtaHolding and Mr. Kamilov own AtaBank, which is the ninth largest bank in Azerbaijan. Synergy, which Kamilov owns, is both a customer and business partner with AtaBank.
- In 2014, Synergy received 139 million manat ($177 million USD) in funding from all sources.
- The problem was that there was only one source: AtaBank.
- From AtaBank’s side, the loans to Synergy represented one-third of all lending given out by AtaBank for the entire year.
Loan restructuring two days before the currency devaluation
According to the Organized Crime and Corruption Reporting Project:
“On Feb. 19, 2015, two days before the first devaluation, AAC LLC, a Synergy Group construction materials company, restructured the loan it got the previous year from AtaBank in an unusual way: it paid back 60 million in manat (US$ 76.5 million), and immediately re-borrowed a slightly higher amount in US dollars. . . The deal was a boon to AAC, which two days later gained about 20 million manat (US$ 19.3 million) from the devaluation. The risky trade was out of character because the company said in its annual report that it had no exposure to currency losses or gains because “all the Group’s sales are domestic and denominated in AZN.””
AtaBank benefited from the loan, too. it earned $39 million USD, which amounted to double the original size of the loan. These financial results were all a result for the currency devaluation and these players’ manipulation of it.
Additionally, AtaBank doubled in size between 2013 and 2014.
AtaBank’s illegal banking activity
AtaBank broke many Azerbaijani banking regulations, but was neither investigated nor punished.
One of the examples of how AtaBank broke the rules was lending money to “insiders.” According to the Organized Crime and Corruption Reporting Project, “It was lending far more money to insiders than is allowed. The audit said the bank cannot loan more than 20 percent of its required capital to related parties. However, the bank loaned 240 percent of its statutory capital to insiders.”
The First Family vs. Jahangir Hajiyev
The contrast between how the government treated Jahangir Hajiyev and IBA versus how it treated AtaBank is stark. The reason, of course, is that AtaBank is ultimately owned by the president and his wife.
Hajiyev was a rising star who was deemed a threat. The First Family was getting massively rich from its own power. Media attention on the family increased.
The heat became too much to bear. So the First Family simply changed the narrative. Not them. Him. Jahangir Hajiyev, who now sits in a jail cell on trumped-up charges in a nation ranked as one of the most corrupt countries in the world.
The government recently placed an article titled “Jahangir Hajiyev pulled Eldar Mahmudov to the bottom” in the newspaper Azeri Daily. In the article, the author pleads with Hajiyev to simply return the money, “repent,” and “start a new life.”
The media offensive is on. The criminal justice system is a full court press. And Jahangir Hajiyev, once a rising star in the national and international scene, is caught in the middle all alone.
We already know who will win this game. It’s wrong. And it’s a real shame.
For more information, check out:
- “Azerbaijani Insiders Benefited from Currency Collapse — Corruptistan” — Organized Crime and Corruption Reporting Project (OCCRP) (6/6/16)
- “How Family that Runs Azerbaijan Built an Empire of Hidden Wealth” — The International Consortium of Investigative Journalists (ICIJ), The Panama Papers series (4/4/16)
- “Panama Papers: How family that runs Azerbaijan built an empire of hidden wealth” — The Irish Times (4/4/16)
- “Azerbaijan First Family’s London Private Enclave” — Organized Crime and Corruption Reporting Project (OCCRP) (5/10/16)