MAY 2013
THE CORRUPTION OF A Z E R BA I JA N S F I R ST FA M I LY
Executive Summary
Azerbaijan faces two contrasting and diverging paths for the future the choice between a free market with a democratic society, or the path of dictatorship and tyranny with a centrally-controlled economy. On the one hand, Azerbaijan has benetted from immense oil wealth, excellent international relations, and a constitution that promotes democracy and enshrines individual liberties and transparency. But, on the other hand, since the collapse of the Soviet Union, the First Family of Azerbaijan has pursued dictatorial policies and the ruling family has instituted a regime of oppressive retaliation and severe crackdowns on human rights. The examples of the First Family's corruption covered in this report run the gamut from shady business interests to large, full-scale assaults on human rights. The President and First Lady abuse their ofces and the positions they hold. They routinely defy the constitution and trample human rights. Neither the First Lady nor President Aliyev have disclosed their assets or income, in direct violation of Azerbaijan law. In addition to their refusal to disclose their assets, the First Family has refused to be transparent about their many business ventures. First Lady Mehriban Aliyeva and her three children own large portions of the airline, real estate, and telecommunications industries in Azerbaijan. This year is an election year in Azerbaijan and provides voters with the opportunity to choose a course correction for their country. It has been widely rumored that First Lady Mehriban Aliyeva has plans to run for President, which will cement her family's ironclad rule in the country.
HIGHLIGHTS
3 WEALTH AND HIDDEN ASSETS The First Family has used its ofcial position to create laws that protect their business interests across different industries. 4 MONOPOLIES Mehriban Aliyeva has managed to secure monopolies over most sectors in the country by hiding companies in the names of her children. 6 RETALIATION AGAINST JOURNALISTS The Constitution of Azerbaijan guarantees freedom of the press and freedom of expression, but in practice, the government violates those rights. Reporters are imprisoned, beaten, and wiretapped. 8 IMPLICATIONS FOR DEMOCRACY A President Mehriban Aliyeva would end Azerbaijan's hopes of building a free society and a democratic government.
Although the outcomes of this year's election will depend largely on the fairness and openness of the election process on Election Day, it is also important to provide the voters with accurate and unbiased information about the candidates in the months leading up to the election. This report aims to provide a clear assessment and accounting of the Aliyev Family's corruption and heavy-handed retaliation. Freedom of the press is severely under attack in Azerbaijan, and investigative journalism is in short supply.
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Political corruption occurs when an ofce-holder or other governmental employee acts in an ofcial capacity for his or her own personal gain. Ofcial action: Award $150 million worth of taxpayer-funded contract to family-owned company. Personal gain: Money (See page 5) Ofcial action: Hide information about family-owned companies. Personal gain: Money and criminal immunity (See page 4)
Power by succession
former Azerbaijani Ambassador to the United States and currently serves as the Deputy Foreign Minister. Today the Aliyev and Pashayev families control numerous companies, industries, universities, non-prot organizations, and real estate. The remainder of this paper will explore how the First Family, and the First Lady in particular, have used their positions to shore up wealth, both in and outside of Azerbaijan, and how they have resorted to dictatorial practices to protect their assets.
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MAY 2013 Additionally, Mehriban Aliyeva is a Member of Parliament. According to ofcial documents, embassy monitors have reported that they have never seen her present in Parliament.9
Family-run monopolies
In Azerbaijan, a small number of families run certain sectors of the economy and control entire geographic areas. Under these arrangements, the families agree with each other not to disturb each others businesses. The families also conspire to exclude foreign competitors in their sectors.4
Funneling funds
Pasha Holdings
The Pashayev family controls a company called Pasha Holdings. Pasha Holdings is a conglomerate that owns Pasha Bank, Pasha Insurance, Pasha Construction, and Pasha Travel.10 All of these individual entities represent huge segments of the Azerbaijani economy. The Pashayev family also owns a local TV station in Baku called Lider TV and a cosmetics company called Nargiz.11 American diplomats further believe that the Pashayev family controls Bank Standard and Kapital Bank.12
Crystal Hall
In 2011 Azerbaijan made plans to build a 23,000-seat concert arena called Crystal Hall to host the 2012 Eurovision Contest for a price of $134 million. A company called Alpine Bau Deutschland AG was hired as the contractor to build Crystal Hall.17 At the construction site, several pieces of construction equipment on-site had the stamp Azenco. A spokesman for Alpine Bau Deutschland AG said that Azenco was a subcontractor on the project.18 But, it was later discovered that Azenco is controlled by the First Family.
ATA-Holding
According to a 2012 article published by Etiraz, ATA-Holding is one of the largest conglomerate companies in Azerbaijan. ATA-Holding owns:13 ATA Bank VTB Bank (Azerbaijan) ATA Insurance ATA Leasing Excelsior Hotel
International reporters have traced ownership of ATA-Holding to Mehriban Aliyevas daughters. According to the Azerbaijan State Registrar, the 51 percent controlling share of ATA Holding belongs to a company called Hughson Management, Inc. Hughson Management, Inc. is registered in Panama.14 According to the Panama State Registrar, the owners of Hughson Management, Inc. are Arzu Aliyeva and Leyla Aliyeva (daughters of President Aliyev and the First Lady).15
Further investigations revealed that a company by the name of Interenerji MMC owns 97.5% of Azenco, and a company by the name of ADOR MMC owns 70% of Interenerji MMC. Ofcial documents for ADOR MMC list 7 Samed Vergun Street as the companys legal address. At the time the company documents were registered, the registered occupants of 7 Samed Vergun Street were Mehriban, Leyla, and Arzu Aliyeva.
19
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NOT ALL STATECONTROLLED EVENTS GO AS PLANNED As it happens, Eurovision turned out to be something of a publicrelations disaster. Western news media persisted in peeking where they werent supposed to, despite the authorities Oz-like injunctions to pay no attention to the country behind the curtain. Loreen, who won the contest for Sweden, went so far as to meet with opposition activists. Margarita Antidze, a local Reuters correspondent, asked Loreen about it at the postcontest press conference. Antidze was accused of being an Armenian spy with a phony Georgian surname. The next day, allegations that her son was illegitimate were posted on the Internet.25-- The New York Times
Additionally, the government of Azerbaijan awarded $79 million in contracts to Azenco in 2010.20 According to Azer Mehtiyev, director of the politically independent think tank Center for Assistance to Economic Initiatives:21 Big infrastructure projects nanced by oil revenues are mainly distributed to companies which belong to high-ranking ofcials. The government keeps the information about owners of the companies secret. The state contracts are assigned to companies established in offshore zones with unknown owners making public control over the process impossible. presidency or while acting in his capacity as president.22 The law speaks for itself.
Immunity law
According to an article in The New York Times about the new wealth in Azerbaijan: The big money stays at the narrow top. It supports a system of crony capitalism and payoffs to keep rival clans happy. Graft and corruption are the norm. Azerbaijan ranks 143 out of 182 countries on Transparency Internationals perceived corruption index, with a score of 2.4 out of 10.24 That same article in The New York Times went on to describe the embarrassment that occurred because of Eurovision. The Eurovision Contest enabled reporters from the international community to descend upon the city of Baku and witness rst-hand how the First Family members lead glamorous lives, the country is an oppressive dictatorship and the democratic institutions most especially the press are under serious attack.
Layers of subsidiaries
Immunity law
In June 2012, Azerbaijans parliament passed a law granting wideranging immunity from arrest and prosecution to President Aliyev and his wife for any crime committed during his
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CONSEQUENCES
IMPLICATIONS FOR AZERBAIJANS DEMOCRACY There are several interconnected facets of a free society. Among those essential pillars of a free society are a free and robust press; fair competition in the business sphere; government transparency and ethics; and the rule of law and the equal application of all laws. If Azerbaijan has any hope of joining the Western democracies, the country will need to get serious about choosing leadership with a commitment to all aspects of a free society. SW Holdings
SW Holdings is an Azerbaijani holding company. It owns almost all of the companies formerly owned by AZAL, Azerbaijans state airline. SW Holdings is the sole contractor on large projects worth a total of $150 million and enjoys a monopoly over almost every aspect of airline service in Azerbaijan.26 SW Holdings owns the following companies:27 Sky Catering, which provides inight meals. Airport Gate, which provides taxi service. Silkway Technics, which provides technical upkeep of planes and helicopters. Its own bank, Silk Way Bank. SW Holdings has come under scrutiny for its ownership by politically connected families. One of Silk Way Banks owners is Arzu Aliyeva, the daughter of President Ilham Aliyev and First Lady Mehriban Aliyeva. Arzu paid 6.4 million manats ($7.8 million U.S. dollars) to acquire her stake of 29 percent in Silk Way Bank. It is not clear where she got that money from.
28
In 2003, Azerbaijans Ministry of Economic Development drafted a plan to privatize AZAL and its holdings (which includes another bank, AZAL Bank). State law prescribed that the State Committee on Privatization of State Property must conduct the privatization. However, no evidence exists showing that the privatization was handled by the committee. The committees spokesperson, Gulu Khalilov, told Radio Free Europe/ Radio Liberty that he had no information on who privatized AZAL Bank.29
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President Ilham Aliyev and First Lady Mehriban Aliyeva frequently talk in terms of democracy and freedom of the press, but the reality in Azerbaijan does not live up to their democratic rhetoric. The Constitution of Azerbaijan guarantees freedom of the press and freedom of expression, but in practice, the government violates those rights. Despite the Constitutions written protections of journalists and free speech, the President and First Lady have waged a war on journalists who question or criticize their actions. Because of these crackdowns, Reporters without Borders ranks Azerbaijan 152nd in the world on its freedom index. 37
Death threats
Ganimat Zahid was the editor of a daily newspaper based in Baku, Azadlig. He has served several years in prison because his newspaper published unattering articles and content about the First Family. He is still the subject of death threats. Avaz Zeynalli was the editor of the paper Khural but was jailed in October 2011. Zeynallis paper provided opposition coverage on the First Family. Agil Khalil is a young Azerbaijani journalist who ed his country after being stabbed and pushed in front of an approaching metro train in a series of murder attempts in 2008. The murder attempts were a clear and direct response to his hard-hitting investigative reports about organized crime and judicial corruption. Khadija Ismayilova is an investigative journalist in Azerbaijan who has become famous because of her clashes with First Lady Mehriban Aliyeva. Not afraid of reporting the truth, Ms. Ismayilova is a courageous reporter who has investigated many of the improper dealings of the First Family, especially concerning their illegal assets lack of transparency. In the past two years, she has suffered several attacks and manipulations from the First Family in direct response to her investigations. At one point, the government hid cameras in her bedroom and wiretapped her cell phone and then used the recordings and images to blackmail her and intimidate her to discontinue her investigations.39
Freedom House, one of the leading voices on human rights issues around the globe, has conducted extensive research on Azerbaijans dismal record with journalists. Azerbaijan is not an electoral democracy, and the freedom of expression situation remains dire. Although the constitution guarantees freedom of speech and press, in practice authorities severely limit both. Libel is a criminal offense, which the government frequently uses for political reasons. Authorities continue to imprison journalists and bloggers who express dissenting opinions. In June 2011, an American journalist and British activist were attacked. In August 2011, six Azerbaijani opposition activists were sentenced to up to three years in prison on trumped up charges for interfering with parliamentary elections, and authorities bulldozed the ofce of prominent human rights defender Leyla Yunus, who had spoken out against the governments policy of forced evictions.38 THE CORRUPTION OF AZERBAIJANS FIRST FAMILY Page 6
MAY 2013 rule of the Aliyevs, laws are arbitrarily enforced to punish their enemies and ignored to provide protection and shelter for their allies and family members. Despite the law's clear intention for all ofce holders to declare their wealth and assets, First Lady Mehriban has routinely deed that law without any consequence. Her daughters have also been able to skirt the laws without any investigations into their criminal wrongdoing. On the other hand, the law has been arbitrarily enforced and interpreted in order to arrest, detain, and imprison the enemies of the powerful Aliyev family.
Democratic survival
Transparency
Transparency is essential to democracy because it is the only way that voters are able to hold elected ofcials and government representatives accountable for their actions. Without a clear overview of how taxpayer dollars are spent or how elected ofcials use public resources, it is extremely difcult for voters to make informed decisions at the ballot box. On the issue of transparency, Azerbaijan remains woefully similar to a dictatorship.
Rule of law
Another necessary feature of democracy is the rule of law and the equal and unbiased application of the law. In Azerbaijan, under the ironclad
MAY 2013
Mehriban Aliyeva
Competition in business
Competition in business is another important aspect of a free society, but again, this is an area where Azerbaijan more closely resembles a tightly-controlled police state. Mehriban Aliyeva has used her ofcial positions, both as First Lady and as a Member of Parliament, to give preferential treatment to her familys companies and investments. As one very clear example, she gave her daughters phone company, Azerfon, an exclusive 3G contract for two years, which enabled their company to beat out all of the competition and allowed them to dominate in the cell phone market in Azerbaijan.
against the members of the media and individuals posing the questions. The end result is a more corrupt, less transparent government. It is widely speculated that First Lady Mehriban Aliyeva intends to run for President at some point in the near future. Given her lack of transparency and the contempt she displays for the rule of law, her run for President would end Azerbaijan's hopes of building a free society and a democratic government. About Us The Caucasus Study Group is a collaboration of students across many North American universities from a broad range of academic disciplines. Our mission is to study and publish important issues affecting Armenia, Azerbaijan, Georgia, Russia, and Turkey.
Conclusion
The First Family of Azerbaijan has used its powerful position to create illegal monopolies and to hide their assets. The worst offender in these areas is First Lady Mehriban Aliyeva, who consistently hides her wealth and refuses to answer questions from taxpayers. The most important sectors in Azerbaijan's economy oil, transportation, telecommunications, and construction are all shrouded in secrecy because the First Family has been less than forthcoming about their business interests and ownership stakes in each of these industries. When the President and his wife have been asked directly about some of their investments and their ownership shares in these sectors, they have retaliated harshly
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Sources
1. US embassy cables: Who owns what in Azerbaijan, The Guardian, 12 Dec 2010 2. http://publicofcialsnancialdisclosure.worldbank.org/fdl/sites/fdl/les/assets/law-library-les/Azerbaijan_Disclosure %20Procedures%20Law_2005_EN.pdf3 3. For a more detailed report on the First Family's refusal to disclose wealth and their secret assets, see this report: http:// www.icij.org/offshore/offshore-companies-provide-link-between-corporate-mogul-and-azerbaijans-president4 4. US embassy cables: Who owns what in Azerbaijan 5. ibid 6. ibid 7. UNESCO, Wikipedia, accessed 21 Mar 20138 8. Organisation of Islamic Cooperation, Wikipedia, accessed 21 Mar 20139 9. US embassy cables: Who owns what in Azerbaijan 10. ibid 11. ibid 12. ibid 13. How Presidents Daughters Ended Up Owning Mega-Million Dollars Holding Company, Etiraz.com, 30 Apr 2012.14 14. ibid 15. ibid 16. Khadija Ismayilova, "Azerbaijani President's Daughters Tied To Fast-Rising Telecoms Firm", Azadliq, 30 Jun 2011 17 17. Khadija Ismayilova, Azerbaijani President's Family Benets From Eurovision Hall Construction, Radio Free Europe Radio Liberty, 21 Mar 201318 18. Azerbaijani President's Family Benets From Eurovision Hall Construction 19. ibid 20. ibid 21. ibid 22. Arife Kazimova,Azerbaijani Parliament Moves To Shield Aliyev, Family From Scrutiny, Radio Free Europe Radio Liberty, 14 Jun 2012 http://www.rferl.org/content/azerbaijan-ilham-aliyev-wife-immunity-from-prosecution/24614499.html 23. Asadzade, Ulviyye, "Aliyev's Azerbaijani Empire Grows, As Daughter Joins The Game", Radio Free Europe Radio Liberty, 13 Aug 201024 24. Joshua Levine, Big in Baku, The New York Times, 15 Aug 2012 25. ibid 26. Aliyev's Azerbaijani Empire Grows, As Daughter Joins The Game, EurasiaNet, 14 Aug 2010. 27. ibid 28. ibid 29. ibid 30. "Azerbaijani President's Daughters Tied To Fast-Rising Telecoms Firm" 31. ibid 32. ibid 33. ibid 34. ibid 35. ibid 36. ibid 37. http://en.rsf.org/report-azerbaijan,91.html 38. http://www.freedomhouse.org/article/death-azerbaijani-journalist-blow-press-freedom39 39. http://iwmf.org/honoring-courage/2012-courage-in-journalism-awards/awardees/khadija-ismayilova/ismayilovaarrested.aspx 40. For information about the retaliation against opposition leaders, see this article: http://www.rferl.org/content/azerbaijanopposition-leader-attacked/24929887.html For further information about the government's retaliation against NGO's and other non-prot organizations, see this article: http://www.rferl.org/content/azerbaijan-presidential-election-/24934952.html 41. http://www.washingtonpost.com/wp-dyn/content/article/2010/03/04/AR2010030405390.html THE CORRUPTION OF AZERBAIJANS FIRST FAMILY
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