I’ve talked in prior posts about the Kazakhstan president’s plans to privatize state-owned companies, and the reticence of American companies to invest in a country that’s a high-risk destination from the FCPA standpoint.
And I’ve said it could be risky for some Kazakh companies to list on U.S. exchanges, because they would instantly become subject to the FCPA and its anti-bribery and accounting provisions.
So where might Kazakhstan find the necessary investment to help it weather a severe economic crisis caused by the collapse of its traditional oil and metals exports?
One likely source is Europe. The Netherlands is now the largest foreign investor in Kazakhstan, with the U.S. a distant second. Other European countries have made substantial contributions as well.
In a recent trade trip to the UK, President Nursultan Nazarbayev signed about 40 trade and investment deals worth £5 billion ($7.45 billion). He secured additional investment commitments during his visit to France. President Nazarbayev said the value of investment contracts signed in London and Paris exceeded $11 billion.
Of course, many European companies are listed in the U.S. and share the same compliance concerns as American companies. Moreover, British companies are subject to the UK Bribery Act, which some believe is more stringent than the FCPA, punishing private bribery and providing no exemptions for facilitation payments.
On the other hand, the UK Bribery Act doesn’t subject foreign companies to its jurisdiction by the mere virtue of listing on a UK stock exchange, so Kazakh companies might consider listing their shares in the UK rather than in the U.S.
Another likely source of foreign investment is China. It is slowly drawing Kazakhstan into its orbit to the chagrin of Moscow, Kazakhstan’s former overlord. Chinese investment in Kazakhstan has more than quadrupled over the past decade. This year, at least 33 bilateral deals worth over $23 billion were signed, and more deals are in the pipeline.
Seeking to revive the ancient Silk Road between China and the West, Beijing is building a One Belt, One Road transport grid of roads, ports, and overseas factories, and Kazakhstan’s plans for modernization fit right in.
All this means the competition for Kazakhstan investment opportunities is on. Will American companies be left behind because of concerns about the FCPA?
Obviously American companies must comply with the law. They need an effective compliance program that includes a thorough vetting of their foreign investments, business partners and contractors. The costs of zealous FCPA compliance are far lower than the costs of noncompliance, and the risk of an FCPA enforcement action should spur even the most laissez-faire company into strengthening its compliance mechanisms.
At the same time, however, Kazakhstan may present sufficiently tempting investment opportunities that would be worth exploring despite significant FCPA-related compliance costs. American companies should not write off the country merely because operating there in an FCPA-compliant manner could be a challenge.
In subsequent posts, I’ll look at the challenging legal and business environment that Kazakhstan presents (and not only from an FCPA standpoint), and tips on how to reduce corruption risks in an emerging market.
Alex Nisengolts is a Chicago attorney focusing on cross-border M&A, electronic discovery, and investments and operations in Kazakhstan. He first traveled to Kazakhstan in 1994 as a legal advisor on a USAID-sponsored legal reform project and has been involved in Kazakh matters for the past two decades, for U.S. and Kazakh law firms and as a manager and senior manager for a Big Four international accounting firm. He can be reached here.