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U.S. Bank Freezes $22B Assets Of Kazakhstan’s Oil Fund

Bank of New York Mellon

In a rare move, Bank of New York Mellon has frozen US$22 billion worth of assets held by Kazakhstan’s sovereign oil wealth fund as part of a years-long legal battle between Kazakhstan and Moldovan investors in Kazakh oil and gas assets, a source told Reuters on Thursday.

Moldovan businessman Anatolie Stati and his son Gabriel Stati, along with two companies owned by them, initiated the legal dispute, claiming that they have been subjected to harassment by the state of Kazakhstan over their investment in two oil and gas fields in the country. The claimants said the ultimate goal of the harassment was to force them to sell their assets cheaply.

The investors have refused to sell their oil assets to Kazakhstan, and instead found an external buyer, but the deal never took place because the state took over the oil fields. Kazakhstan has argued that the fields have been badly managed and it had to step in to save the companies.

The Moldovan investors have won an international award of US$500 million against Kazakhstan, which it has refused to pay.

The claimants’ pursuit to receive the payment has lead to some 40 percent of the assets of the oil fund, the National Fund, being frozen, Reuters’ source said.

According to Simon Quijano-Evans, an investment strategist at Legal & General Investment Management in London, freezing assets of a sovereign wealth fund is a very rare move.

Related: Is Aramco Shopping For U.S. Shale?

“If 40 percent of a sovereign fund is frozen and you don’t have access to it, that should be an alarm bell for policymakers,” Quijano-Evans told Reuters.

“Theoretically [the fund] is a national institution so it should cause a rethink for central banks and sovereign wealth funds as it’s been assumed so far that these assets were relatively immune,” the strategist noted.

Kazakhstan filed in October a civil racketeering lawsuit in the U.S. District Court in Washington DC against the Moldovan investors and their firms. Kazakhstan’s central bank, the National Bank, has also filed a lawsuit against BNY Mellon, Reuters reports.

By Tsvetana Paraskova for Oilprice.com

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