Spotlight on Turkmen Bank Accounts Abroad

Pressure group believes state finances remain far from transparent, and gas export money may be held in foreign accounts.

Spotlight on Turkmen Bank Accounts Abroad

Pressure group believes state finances remain far from transparent, and gas export money may be held in foreign accounts.

Sunday, 29 March, 2009
More than two years after the death of President Saparmurat Niazov, the anti-corruption pressure group Global Witness believes Turkmenistan may still be placing large amounts of natural gas revenues in off-budget accounts abroad.


In an interview for IWPR, Tom Mayne, a campaigner with Global Witness, noted that Turkmenistan was now earning far more from gas exports than it did under Niazov, who is alleged to have exercised sole control of this money in accounts with Deutsche Bank in Germany.



Although Niazov’s successor Gurbanguly Berdymuhammedov, elected in February 2007, indicated early on that he planned to change this system of opaque accounting for the state finances, Global Witness believes the Turkmen leadership may be continuing to use foreign accounts.



The group’s latest report, entitled “Undue Diligence: How banks do business with corrupt regimes” and released on March 11, looks at Turkmenistan as one of a number of resource-rich states whose leaders used western banks to deposit foreign currency earnings belonging to the state, and in some cases used their access to these accounts to embezzle and fritter away these funds.



Under Niazov, who was Turkmen president from independence in 1991 until his death in late 2006, the report says, “Turkmenistan is the only country that Global Witness has ever come across where none of the natural resource wealth appeared to be making it on the government’s budget.”



On the role of Niazov’s German bankers, the report said, “Deutsche Bank held the central bank accounts for gas-rich Turkmenistan for 15 years, despite the fact that the money was being kept out of the national budget and was effectively under the personal control of Niayzov.”



To show the scale of the revenues that were diverted, the report says Turkmenistan earned five billion US dollars from gas exports in 2007, around half the country’s entire gross domestic product the previous year.



Tom Mayne told IWPR what Global Witness was trying to achieve.



Question: Can you introduce Global Witness and why it carries out investigations of this kind?



Answer: Global Witness is a non-governmental organisation based in London and Washington. We work to demonstrate the links between natural resources and corruption and conflict, and try to break those links by getting governments to change their policies.



Q: What was the main aim of the report, and what were its principal recommendations?



A: One of our original aims was to look at energy-supplying countries and examine who controls the flow of that money.



In countries where the “resource curse” is prominent, corrupt officials often misappropriate the money. But this is only half of the story. Where is that money stored?



Most often, as our report shows, the money is stored in the West, so we are aiding kleptocrats in hiding their ill-gotten gains. We are calling for governments to start to hold banks accountable for their actions, for proper oversight to be conducted when it comes to doing business with politically-exposed people, for money-laundering laws to be strengthened, for stricter laws regarding tax havens, and so on.



The aim of the report was to throw some light on this issue, and show how the EU is complicit in corruption by allowing banks in its jurisdiction to do business with politically exposed people and corrupt regimes. Our aim is to strengthen banking regulations to prevent this from happening in the future. The European Commission needs to address this issue.



Q: What were the main findings on Turkmenistan?



A: That Deutsche Bank acted as the main banker for the government of Turkmenistan under President Niazov. Though Deutsche Bank has confirmed that they did not hold personal accounts for Niazov, because of the nature of Niazov’s rule, all of Turkmenistan’s money was under his control.



Most worryingly, we know that 50 per cent of all money coming from the sale of the country’s gas was placed in the Foreign Exchange Reserve Fund at Deutsche Bank, a special fund which – though under the ostensible control of the Central Bank – could only be accessed by Niazov himself, and was used by him to build the golden statues and the palaces that he became famous for.



Thus, Deutsche Bank was aiding Niazov in the creation of his ubiquitous, odious personality cult.



Q: Is this the first report Global Witness has done on Turkmenistan?



A: We first wrote about this issue in 2006 with the report “It’s a Gas”. This is an update on the situation.

Q: Tell us how the actual investigation was conducted?



A: We used a variety of sources: documents and contracts, interviews with key officials, and reports from international financial institutions.



The main obstacle has been Deutsche Bank’s unwillingness to engage in a dialogue. They always cite their membership of the United Nations Global Compact, but this initiative does not have any mechanism to see whether the businesses are living up to its ideals. It is, therefore, effectively useless and just paraded by businesses as a kind of good-governance marketing tool.



Q: What kind of pressure can be exerted on the corrupt governments that Global Witness investigates for corruption and misuse of public funds?



A: Unfortunately, most of the regimes we deal with are not interested in dialogue and they don’t respond to our complaints. That is the nature of dictatorships – absolute power.



That’s why it is up to us in the EU to make sure that our banking systems are not used by corrupt regimes. We need to have similar investigations [to the United States] in the EU, and severe penalties brought against any institution found to be in violation of national or international laws.

Q: The investigation has brought to light that state gas revenues were kept off-budget, and has revealed the involvement of Deutsche Bank. Is your organisation pursuing the matter further?



A: Currently, because of current banking secrecy laws, we have very little influence on the bank. We raised this matter at the Deutsche Bank annual general meeting last year. The head of the bank Dr Josef Ackermann simply referred to the UN Global Compact again.



The government of Turkmenistan has a responsibility to its people to be more transparent in the way it spends its money. It releases very little information in this regard, despite the fact that President Berdymuhammedov said he would in 2007.



We will be turning to the Turkmen authorities in the coming months with questions regarding how the government manages its resources.



Q: What is the current situation with the Turkmen government account with Deutsche Bank?



A: We have not heard any information that would lead us to believe that Turkmenistan has changed its banking arrangements. A recent statement by Roland Weichert, Deutsche Bank’s press secretary confirms that Deutsche Bank still holds an account for the Turkmen Central Bank.



Therefore, we must assume that money is still flowing to Germany – and much more than in Niazov’s reign.



The price that Turkmenistan is selling gas to Gazprom in 2009 has not been announced yet, but it is thought to be around 250 dollars per 1,000 cubic metres. If Gazprom buys 50 billion cubic metres of gas at this price this would mean Turkmenistan earns 12.5 billion dollars.



By contrast, the contract we cite in our report from 2002 between Turkmenistan and Ukraine was for gas worth just 1.68 billion dollars, and of this 840 million was to be paid in cash, the rest in barter.



Therefore it is becoming all the more important for Deutsche Bank to reveal what safeguards it has in place to ensure that this money is being used for legitimate government purposes.



Q: Banks do profit from holding accounts such as the one linked to Turkmenistan and will try to resist any attempts to scrutinize their activities. Given that how successful can be your campaign?
A: It is difficult because of current banking regulations that provide for secrecy and confidentiality. But as we have seen recently with the global financial crisis, banks cannot be trusted anymore. They cannot be left to their own devices. We have to improve regulation and make sure that it is enforced. People are starting to realise that now and hopefully we are seeing the start of a movement which well lead to a more accountable banking system.



We have done well in getting Deutsche Bank to confirm that they are indeed the banker for the Central Bank of Turkmenistan. In light of banking secrecy laws, that in itself is a victory: Deutsche Bank has admitted banking for one of the most horrendous autocratic regimes in the world.



Now we have to do more work as to how this relationship is managed, and what happened when Niazov died.



Q: Has there been any reaction to this report from the parties concerned – the EU, the banks, or the governments investigated by Global Witness?



A: Deutsche Bank have replied in the media via press secretary Roland Weichert, who again states the bank is a member of the UN Global Compact – without explaining how they are living up to this compact by banking for autocratic Turkmenistan.



It is simply not good enough.

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