Investors in the London-listed mining company Kazakhmys were not warned of the close ties between its management and Kazakhstan's controversial President before the business was floated five years ago, an influential pressure group has claimed.
Global Witness, which monitors corruption in the natural resources industry, said the FTSE 100 copper miner was run by a clique of managers close to President Nursultan Nazarbayev, who has been accused of accepting bribes in return for handing the rights to Kazakh oilfields over to Western companies in the 1990s.
Global Witness also said that because of the UK's "light-touch" approach to financial regulation, the Financial Services Authority did not sufficiently investigate the company before its flotation in 2005, and "potentially vital information about the biographies of senior managers" was not revealed.
Tom Mayne, a campaigner at Global Witness, said: "Investors, including ordinary people saving for their pensions, need to know the risks around Kazakhmys because its shares contribute to the FTSE 100 index. But because UK regulation is so inadequate, we know little about how [its] senior managers, who are also its major shareholders, relate to President Nazarbayev."
Kazakhmys admits that certain members of its board are close to the government in Astana, including the chairman Vladimir Kim, who is the single biggest shareholder in the £5.8bn company. Mr Kim is a former member of President Nazarbayev's political council. The President's brother, Bolat Nazarbayev, also serves on the supervisory council of Kazakhmys.
Details of the bribery allegations involving the President emerged when James Giffen, a US businessman and a former adviser to Mr Nazarbayev, was charged in the US with violating the US Foreign Corrupt Practices Act and money laundering.
Kazakhmys argued that the Global Witness report was littered with errors and that its sources were seeking to undermine the government. Global Witness did concede yesterday that one of its Kazakh sources was Rakhat Aliyev, the President's former son-in-law and an ex-deputy foreign minister. Mr Aliyev is a known opponent of the President.
Issuing a statement in response to yesterday's allegations, Kazakhmys said: "Kazakhmys takes its corporate governance procedures extremely seriously ... The company was subject to rigorous and detailed due diligence ahead of its London listing in 2005 – by two international investment banks and two major London law firms – and believes that it disclosed all information that investors required to make an informed investment decision."
The FSA, which was heavily criticised in the Global Witness report, declined to comment. The pressure group said the watchdog should investigate the links between Kazakhmys and the President's office.
"The FSA ... refused to tell Global Witness what due diligence it had done on Kazakhmys on the grounds that it was 'not in the public interest'," the report said. However, rules about transparency are largely decided at European Union level.
Four of the leading shareholders in Kazakhmys have links to Kazakhstan. According to data from Thomson Reuters, Mr Kim owns 38.9 per cent of the shares, while the Kazakh finance ministry holds 15 per cent. The chief executive, Oleg Novachuk, has 5.5 per cent and another board member Vladimir Ni – who according to Global Witness was once Mr Nazarbeyev's chief of staff – owns 2.2 per cent.
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