Lewis, David. "Tackling Corruption in Uzbekistan: A white paper". New York: Open Society Eurasia Program. 2016.

Lewis, David. Tackling Corruption in Uzbekistan: A white paper. New York: Open Society Eurasia Program. 2016.

• This document is a report by the Open Society Institute cataloguing a variety of corrupt practices in Uzbekistan. It contains a number of valuable case studies stretching back to 2000, including a chronicle of the downfall of Gulnora Karimova. The report as a whole was a strong basis against the policies of the Republic of Uzbekistan, demonstrates a consistent unwillingness or inability to access Uzbekistani sources, and indulges in unsubstantiated sources so long as they are critical of government policy. The report conflates 'independent' with pro-Western in the international context, ignoring the plurality of Russian news sources available to Uzbekistanis, and with critical or anti-government sentiment in the domestic context. Furthermore, the suggestions of the group reveal a neoliberal and pro-Western agenda which seeks to enhance business and politics along Western models without concern for native practices -- this is particularly clear in suggestions about economic policy, which call for liberalization and lack of corporate accountability as solutions to corruption.
• In February 2016, telecommunications company Vimpelcom was forced to pay $800 million in fines to American and Netherlandish law enforcement for bribing officials in Uzbekistan. American authorities are also seizing over $850 million from bank accounts in Europe linked to the investigation (5).
• "Although Uzbekistan has recently improved its position in the World Bank’s ‘Doing Business’ rankings, investors still face a complex licensing system, an opaque tax code, and highly restrictive cross-border trade and currency regulations. These bureaucratic structures provide opportunities for corruption and rent-seeking, which damage the prospects for foreign investment, stifle local entrepreneurship and worsen inequality" (5).
• Some scholars view corruption in Uzbekistan as driven by cultural practices inherited from the Soviet Union or even pre-Soviet traditions, but the primary drivers of corruption are still institutional and systemic factors in the government and economy of the Republic (6).
• Rumors of high-level corruption and constant exposure to low-level corruption fuel discontent in Uzbekistan, which increases out-migration elsewhere and decreases stability (7).
• Analysis of corruption typically synthesizes data from three sources: public opinions polls using perceptions of corruption as an approximate measure for corruption, analysis of institutions which may allow for corruption, and case-studies of specific projects. Since public polls are not trusted by the organization, only the last two are used in the report (8).
• The government has conducted one public poll of corruption via the polling agency Ijtimoiy Fikr, and a survey of more than 10,000 businesspersons undertaken by Ministry of Industry and Commerce and the Procuracy. Both surveys are used for internal distribution, but not shared with the Open Society Institute (8).
• Rather than using the World Bank definition of corruption -- "The abuse of public office for private gain" -- which the author believes ignores substantial private sector corruption, the report uses the definition supplied by the EU, "the abuse of power for private gain" (8).
• Uzbekistan has a history of widespread corruption, being the epicenter of a massive political crisis in the 1980s over massive fraud and embezzlement surrounding the procurement of cotton (9).
• Since independence, the state has continued to play a leading role in the economic organization of the country, leading to state officials retaining enormous discretionary powers over a number of prosperous services. The complexity of the bureaucratic system has led officials and insiders to seek rent for their positions and spawns corruption (9-10).
• Most actual politics in Uzbekistan is undertaken via 'clans', political associations sometimes based on kinship, regional identity, or business affiliations, which informally distribute economic and political power among their group. These networks are hierarchical, with lower officials paying higher-ups in return for political protection (10).
• The universal nature of corruption in societies like Uzbekistan further entrenches the power of corrupt elites, who can threaten subordinates or challengers with legal punishment for past corrupt activity (10).
• These groups develop at the local level and are sometimes mostly independent of national level politics. When a rival network becomes a threat it is purged through mass arrests, sometimes these also take place against national figures and business elites, when they become too powerful and are viewed as a threat to ruling elites (10-11).
• The Uzbekistani political system relies heavily on the use of law enforcement to suppress dissent. Police are frequently used to disrupt any anti-government protest or activities. Detention is arbitrary and abuse while detained is common. The court system draws from the Soviet legacy of confessions, most of which are obtained under duress or torture (11).
• Since late 2009, when President Karimov announced the dangers posed by 'oligarchs' to the future of the Republic, arrest and prosecution of major business figures has been common. During the latest purges in 2010, several companies associated with Gulnora Karimova were also disbanded (11-12).
• The telecoms industry in particular has been under specific attack for corrupt practices since 2012, when Uzdunrobita was forced to suspend operations in July 2012. By August its assets were being seized by the Procuracy. The manager of the firm, Mr. Bexzod Axmedov, fled the country and a red notice for his arrest was sent to InterPol (12).
• On 30 July 2012, two managers of the Coca Cola plant in Uzbekistan were arrested in Geneva for trying to access money from Mr. Bexzod's account. Swiss authorities then announced that they were opening a money laundering investigation into four Uzbekistani citizens in Switzerland and froze millions of USD in associated accounts -- in 2014 this investigation was expanded to include accounts associated with Gulnora Karimova (12).
• In September 2012, a Swedish investigative report claimed that TeliaSonera, a Finno-Swedish telecoms company, had paid Takilant, a firm based in Gibraltar, $300 million to receive a license to operate 3G networks in Uzbekistan. TeliaSonera admitted to faulty practices but not corruption, spurring a formal investigation by the Swedish government in March 2014 into allegation of bribery (13). 
• In March 2014, the American Department of Justice began a separate investigation into the TeliaSonera case, and the Netherlandish government opened investigation into two Netherlandish firms also connected with Uzbekistani telecoms and Takilant (15).
• The United States Department of Justice concluded that "The U.S. investigation has revealed that VimpelCom, MTS, and TeliaSonera paid bribes to Uzbek officials to obtain mobile telecommunications business in Uzbekistan and that funds involved in the scheme were laundered through shell companies and financial accounts around the world, including accounts held in Sweden, to conceal the true nature of these illegal payments" (15). 
• In February 2016, VimpelCom admitted that the company had paid $114 million in bribes to an Uzbekistani government official, and agreed to pay $795 million to the US and Netherlandish governments as a fine (15-16). A further $850 million were later seized as proceeds of corruption (16).
• Many of the investigations and figures were closely associated with Gulnora Karimova, the President's eldest daughter. Both Mr. Axmedov, the men arrested in Switzerland, and Gayane Avakyan, the manager of Takilant, were her business associates or friends (12-13).
• Due in a large part to the prosecution of businesses and figures associated with Gulnora Karimova, Ms. Karimova's empire within Uzbekistan began to collapse. In October 2013, 3 radio stations and 4 TV channels controlled by Ms. Karimova were shut down, followed by a number of retail outlets. In November, Uzbekistan suspended the license of Credit Standard Bank, associated with her businesses, and her 'charity' was closed down (13-14).
• On 17 February 2014, police stormed her apartment in Toshkent and arrested Rustam Madumarov, Gayane Avakyan, and Yekaterina Klyueva, three of her close associates. In June, the government announced that they, among others, had been sentenced to a minimum of 6 years for financial crimes. Gulnora Karimova was placed under house arrest in September of that year (14).
• It is estimated that the activities of the criminal gang run by Gulnora Karimova, including money-laundering and the acquisition of shares of major firms at well-below market price, resulted in loss of around 457 billion so'm [$191 million] from companies that the group preyed upon (14).
• In March 2014, the Swiss government froze all assets associated with Ms. Karimova as part of an ongoing money laundering investigation. Over 800 million Swiss Francs were seized (15).
• Other powerful business and criminal networks were broken up around the same time as the arrest of Gulnora Karimova, including Akbarali Abdullaev in October 2013 -- allegedly Islom Karimov's nephew and a business and criminal magnate in the Farg'ona Valley -- and General Hayot Sharifhojaev in July 2015 -- a former First Deputy of the Milly Xavfsizlik Xizmati [MXX]. A number of people associated of both these figures, including several high-ranking MXX officers were also arrested during the same period (16-17). 
• According to American officials, despite a well-educated populace and robust infrastructure, foreign business and investment remains difficult in Uzbekistan due to an atmosphere of pervasive corruption and demands for bribes to complete administrative procedures (17).
• Many companies wishing to invest in Uzbekistan will find a local partner or Uzbekstani administrator who will handle legal issues and navigate the complex bureaucracy of the system. Knowingly or not, this arrangement locates foreign companies in webs of corruption and often constitutes breaches of business ethics or legality (18).
• Corruption pertaining to foreign investment in Uzbekistan usually results from one of two areas. Joint ventures and major investments, especially in extractive industries, require a special resolution detailing the minutia of the agreement; getting this approval usually requires kickbacks or bribes. Secondly, licensing systems are discretionary, meaning that initial payments and continued retainers are needed to maintain operation (18-19).
• Companies operating in Uzbekistan, both foreign and local firms, will be approached by corrupt official demanding bribes to meet the complex legal and bureaucratic requirements to renew licenses, exchange currencies, or allow exports and imports through the customs system (19).
• Businesses which refuse to comply with demands for bribes by various officials and government agencies will either be closed down over administrative violations, have assets punitively seized, or experience major difficulties doing business due to government interference (19, 21-22).
• The exploitation of the complex tax code to extract bribes remains one of the most common tools used by corrupt officials in Uzbekistan. The tax system is fiendishly complex and ambiguously applied, leaving the Procuracy enormous discretion in demanding taxes, usually done for personal enrichment (20).
• Since 2012, the Uzbekistani government has made attempts to simplify the tax code and introduce electronic filling, which can be easily verified by higher officials. However, these reforms were of limited success at stopping low-level corruption, and did not stop elites from using the tax agency as a political weapon against business rivals (20).
• Many foreign companies and joint ventures in Uzbekistan benefit from preferential tax situations or exemption from certain duties during early periods of operation. However, procurators frequently employ arbitrary suspension of these privileges and demand for back payments to pressure companies into supplying bribes (20).
• The closed nature of the Uzbekistani law enforcement and judicial systems means that individuals accused of financial crimes such as tax evasion, often under circumstances of corruption and state seizure of assets, are detained and abuses by police officers to extract confession; they may also face prison sentences for falsified charges (22-23).
• In addition to the official budget, Uzbekistan also maintains the Fund for Reconstruction and Development -- which saves and invests budget surpluses -- and the Fund for Payments for Agricultural Production Purchased for Public Use [Selxozfond] -- which controls revenue generated from state exports until incorporation into the budget. The administration and oversight on both of these funds is opaque, leaving potential for embezzlement or misuse (23).
• State procurement of materials for numerous construction projects and state-owned enterprises is a common source of corruption, with graft and kickbacks being endemic to the process at both regional and national levels (24).
• Some mechanisms to oversee procurement have been established at the Cabinet of Ministers and Ministry of Finance, but their exact oversight is unclear. An electronic tender system has also been introduced to more openly track bidding, but its effectiveness has been undermined by the discretionary classification of some contracts as closed or open on unclear criteria (24).
• Uzbekistan does not technically have private property in rural areas, with farmers instead receiving a life-long grant on land provided they meet certain output requirements usually related to cotton and wheat production. In addition to retracting land, local authorities have discretion over the provision of fuel, seeds, machinery, and other inputs. This structure provides local authorities and farmers with ample opportunity for corruption (27).
• Local authorities have discretion in the division of land, which varies wildly based on soil quality and proximity to irrigation canals, are often distributing it selectively to benefit old shirkat heads, cronies, or family. Typically resources necessary for farming will also be parceled out based on corruption and cronyism (27).
• "A farmer in Rishtan [...] decided to expand his poultry farm and applied for more land. To receive it, he needed the appropriate documents from the Rishtan environmental inspectorate, but was told he would only receive the documentation if he paid a bribe of 1.5 million so'm (U.S. $750). [...] the official was arrested, as part of the government’s anticorruption campaign" (27).
• In 2003, Uzbekistan agreed to implement full convertibility of the so'm along IMF guidelines, but this process has come with so many restrictions meant to guarantee the continuation of import-substitution policies that the currency remains non-convertible in many areas (28).
• Officially the Uzbekistani So'm has two exchange rates: the rate of borrowing from the Central Bank and the rate of exchange on the Republican Currency Exchange. Ultimate access to foreign currency is at the discretion of the Central Bank, which experiences frequent delays and prioritizes some firms over others (28).
• Businessmen working in Uzbekistan have noted that favoritism in the supply of foreign currency for import or export requirements benefits Uzbekistani companies over their foreign-owned rivals as part of a larger policy to promote import-substitution (28).
• Every aspect of customs and border-crossing in Uzbekistan is fiendishly complex, despite attempts to reduce the paperwork burden, decrease stringency of import registration, and introduce electronic filing. Nearly half of all border transactions involve bribes, usually to officials to speed up difficult proceedings and off-set low salaries (29).
• In September 2014, Uzbekistan arrested Colonel Sirojiddin Gulamov, head of the State Customs Committee for Toshkent region, his deputy, a captain-senior inspector at a border and customs post in Gisht-Kuprik, and two officials who ran the ‘Oibek’ customs and border post on the border with Tajikistan. All were accused of organizing a criminal racket to extort businessmen involve in cross-border trade (30).
• Under-reporting or incorrectly invoicing the contents of imports and bribing officials to ignore the discrepancies is a common way to avoid the high import tariffs introduced under Uzbekistan's import-substitution policies (30).
• Corruption surround transportation and customs in Uzbekistan led to serious concerns regarding the use of Uzbekistani infrastructure for the North Distribution Network in the War in Afghanistan, and was taken into consideration by the US Senate when the project was reviewed (31-32).
• Banks in Uzbekistan are usually small and locally management, with an significant flow of capital being carefully monitored by a central mechanism. Domestic laws and international cooperative agreements within the framework of the G-7 have help cut down on financial crime, but misuse of banks is still possible by political or economic elites (32).
• Illicit financial practices by businesses and individuals in Uzbekistan rarely feature Uzbekistani banks, instead depending on a wide network of shell companies and corrupt banks in Europe, Hong Kong, and the Americas (33).
• Another technique for laundering illicit gains popular among Uzbekistani elites was the purchase of international property. Not only are property purchases in most EU countries weakly regulated, they sometimes come with benefits such as preferential citizenship and visa requirements (33-34).
• The Uzbekistani government has made a number of formal steps to combat corruption, acceding to the UN Convention against Corruption in 2008 and the OECD's Instanbul Action Plan on Combating Corruption in 2010 (34, 43). In 2012, it was reported that a Presidential Decree was issued to create a comprehensive plan to combat corruption (34).
• The failure of the Uzbekistani government to actually create a comprehensive plan to deal with issues of systemic corruption, or adopt some of the suggestions of the OECD demonstrates a lack of political will to deal with corruption at the national level (35).
• The civil service remains unreformed, with unelected positions in the Presidential apparat bought and sold through corrupt connections (36).
• Government programs to counter corruption are frequently punitive and do not result to substantive change in practices. For example, corruption in certain private businesses like notaries or driving schools is met with mass closure of these institutions and expansion of the state, simply transferring corruption to the public sector (36).
• The report suggests that the liberalization of the economy would be a good first step towards combating corruption and exploitation of business by state officials. Cutting some bureaucratic restrictions and introducing more electronic governance would help limit the discretion of corrupt officials (35-36).
• The Uzbekistan legal system generally criminalizes all actions which are considered to be corruption internationally, however there are some gaps in the Criminal Code. The government does not specifically criminalize public officials receiving gifts, or conspiracy to give or receive bribes. Nor does the government distinguish between public and private corruption (37-38).
• Whistle-blowers on corruption are not entitled to any legal protections (38).
• The judiciary in Uzbekistan follows the Soviet-model, where the accuse is expected to confess in police custody. The judiciary works alongside the police and the prosecutor in most cases and acquittals are uncommon. While courts are sometimes susceptible to bribery, political ties prevent this from making a difference in important cases (38).
• The Higher Economic Court in particular is singled out by businesses as an unfavorable environment which is deeply politicized. Major disputes, especially between companies, do not usually reach an impartial agreement (38).
• Anti-corruption policy in Uzbekistan is coordinated nationally by the Department for the Fight against Economic Crime and Corruption, under the General Procuracy. In addition, an independent auditing body known as the Accounts Chamber conducts investigations of public finances, and the Ministries of Finance, Defense, Internal Affairs, and the MXX all have internal anti-corruption bodies designed to combat kickbacks and graft (39).
• Both the MXX and the Department for Combating Corruption, Extortion, and Racketeering within the Ministry of Internal Affairs have some officers dedicated to anti-corruption efforts. The MXX in particular are part of public campaigns against corruption, despite their own involvement in illicit activity (39).
• Access to critical media sources is highly restricted, with major Western agencies like BBC, Voice of America, Radio Free Europe, and Deutsche Welle being effectively banned. Journalists for major Western news outlets rarely receive accreditation and independent journalists domestically are harassed by the police and arbitrarily detained (41).
• Journalists who cover cases of corruption within law enforcement agencies or without permission for the Procuracy face reprisals including harassment and imprisonment on falsified or trumped-up charges (42).
• Uzbekistan participates in the EU Rule of Law program, launched in 2011, which seeks to provide Ministry of Justice staff, lawyers, and judges from the Central Asian republics with education in judicial practice and organize seminaries to help increase professional competence. The report casts doubt on the success of the initiative (43).
• The UNDP launched a similar program of the same name in October 2014, this time focused on promoting judicial development within Uzbekistan. It has also funded the development of an publicly-accessible online system for filing court documents and writs (43).
• The UNDP and World Bank organized a series of programs in Uzbekistan to educate staff in the Ministry of Justice about best practices regarding procurement. They have also sponsored initiatives to bring domestic administrative laws into accordance with international recommendations (44).
• "None of these [international] programs are making tangible progress in addressing the key problems of corruption in Uzbekistan. Most focus primarily on technical aspects of anticorruption programs. Others [...] combining superficial training programs, external consultancies, and study tours abroad. They seldom reflect the complex political dynamics of corruption in their programs, and have failed to engage with [...] affected groups. [...] Over the long term, Uzbekistan will require technical assistance in areas such as state procurement and public financial management in order to achieve any progress in tackling corruption. International partners need to balance the evident lack of impact of current programs with the need to retain some channels for long-term influence on the reform of state institutions" (44).
• "Achieving significant progress against corruption in the country will require the reform of both the economy and the political system, the development of an independent judiciary and rule of law, much greater freedom for the media, and an end to persecution of civil society" (45).
• The current system of international programs designed to combat corruption in Uzbekistan focus on ephemeral measures such as education and peer-to-peer engagement. Real progress requires substantive engagement including benchmarks for reform worked out in cooperation with the Uzbekistani government (45).
• The author recommends that the issue of corruption be disentangled from issues of police abuse and human rights through the separation of economic crimes from the criminal code. The report suggests that in addition to general reform of law enforcement, persons guilty of economic crimes no longer be held responsible for company behavior under the Criminal Code (46).
• Transparency can be increased and corruption prevented through enhancing the freedom of journalism in the country and ensuring public access to all budgetary documents, judiciary proceedings, and court decisions (46).
• Preventing Uzbekistani officials and corrupt persons elsewhere in the world from profiting off their illicit gains requires a reform of international banking practices, including in the EU, to strengthen the ability of states to detect and target money laundering, with a specific focus on shell companies and property markets (46-47).