Crypto Miners Accused Of Exploiting Kazakhstan-Backed IT Startup Hub

Would-be IT startups based out of a government-backed technopark in Kazakhstan’s capital, Astana, have been mining cryptocurrencies and availing themselves of tax benefits in the process, state auditors have said.

The Audit Committee, a government agency that monitors state spending and answers only to the president, noted in a statement last week that poor oversight by the Ministry of Digital Development, Innovation and Aerospace Industry has led to crypto-miners turning the Astana Hub into a financial “offshore platform.”

“The activities of these companies do not correspond to the goals and scope of the international technopark,” the Audit Committee said in an October 14 statement.

The Astana Hub – hopefully dubbed Kazakhstan’s Silicon Valley – was opened in 2018 with the stated goal of serving as an incubator for new generations of IT specialists. Simplified visa and work permit regimes were established to lure foreign investors into putting down roots at the center. Another major incentive were the tax breaks that have allegedly been exploited by crypto-miners.

The Audit Committee said that its inspections at the Astana Hub led to the expulsion of more than 100 occupants over various contractual violations. These included the pursuit of “activities inconsistent with the mission and goals of the technopark” and “failure to provide quarterly reports.”

The hub itself, however, denies that it had any digital currency miners in its midst.

“What we’re talking about is companies that provided computing infrastructure services to third parties, possibly including digital miners. But they were not digital miners themselves and they did not mine cryptocurrencies,” Bakytzhan Yeshmukhambetov, managing director of Astana Hub, said on October 17.

The government earlier this year vowed to wage war on unlicensed crypto-miners amid concerns that the sector was putting an excess load on the national power grid. The problem arose following China’s de facto ban on crypto-mining in 2021, which sent miners fleeing for the relative haven of Kazakhstan, where low electricity costs made the enterprise a highly profitable undertaking.

What was good for the miners, though, caused trouble for the rest of the population. The unpredictable use of electricity made by the IT miners is believed to have been among the causes of a region-wide blackout at the start of this year. Officials also complained that gray miners, as unlicensed operators are known, had been avoiding paying their dues in taxes by presenting themselves as manufacturing enterprises.

In the course of investigations, it even emerged that close relatives of former President Nursultan Nazarbayev were involved in this opaque business.

In March, the Financial Monitoring Agency revealed that Nazarbayev’s brother, Bolat, had investments in lucrative cryptocurrency mining operations in northern Kazakhstan. Those activities, the agency said, “presented a threat to the country’s economic security.”

The crackdown appears to have brought a sliver of relief for the power grid. Energy Minister Bolat Akchulakov said at a government meeting on October 18 that electricity consumption has fallen by 1.4 percent over the past year. He attributed that development to the fight against illegal crypto-mining.

Conditions for legitimate digital currency miners are only due to get tougher. The Majilis, the lower house of parliament, has already passed the first reading of a bill that would limit the amount of power miners are eligible to consume. The legislation would furthermore tighten state control over the industry by bringing in stricter licensing rules and requiring the registration of data-processing equipment.

By Eurasianet.org

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