What is Going on with FPL Head's Recent Appointment?

Last week, the Fund of Problem Loans (FPL) appointed a new chair of the board, Kalilla Abdullayev. Kazakhstan's Ministry of Finance press service reported this in a routine information message. The fund is to is subordinate to the Ministry. No other details were reported in the press release, except for the work experience of the new director. Orda's financial analytics department has looked into the matter.

From 2014 to 2017, Abdullayev was the Finance Ministry's Public Procurement Committee Chair, a position of great responsibility. He then transitioned to the Presidential Administration as a state inspector. In 2019, he left the civil service and held the position of corporate relations partner at the audit firm Russell Bedford A+Partners until 2021.

Working for a private audit company is seemingly negligible. In this position, he was responsible for working with clients, among whom were quasi-state companies. By coincidence, starting from the 2017 financial year and to this day, Russell Bedford A+partners have been preparing the audit report of the Fund of Problem Loans. This fact went unnoticed in the media.

Not Just a Fund

FPL is a non-public and opaque organization. According to consolidated financial statements as of the beginning of 2024, its assets exceeded 281 billion tenge, while the shareholder and additional paid-in capital exceeded four trillion tenge. Yes, the state injected four trillion tenge into the fund's capital. The accumulated loss over the years of the fund's activity has already amounted to more than 246 billion.

The FPL was created to sort out Kazakhstani banks' problem loans, including the defunct Kazkommertsbank and Tsesnabank. The fund's financial results suggest poor performance. The FPL's activities deserve their own publication, which the Orda.kz financial analytics department will write.

Conflict of Interest?

The fund has received colossal amounts of state funds, and unfortunately, the prospects for even a partial return of these funds seem highly illusory. The appointment of a former partner of the company that audits the fund to the position of its director creates a potential conflict of interest.

Article 51 of the Law of the Republic of Kazakhstan on Civil Service is dedicated to conflicts of interest, and specific methodological guidelines describe typical situations that cause such a conflict.

The following situation is described: “A civil servant participates in the implementation of individual state functions in relation to an organization of which they were the owner, manager or employee before entering the civil service.” 

As a measure to prevent a conflict of interest in such a situation, the immediate supervisor is recommended to remove the civil servant from performing official duties related to the former employer. According to this logic, either the auditor or the civil servant should be replaced. Advanced corporate practices recommend changing the auditor at least once every four years.

A civil servant may maintain friendly relations with their former colleagues and sympathy for an organization. At the same time, both friendly and hostile attitudes may prevent the civil servant from objectively fulfilling his official duties. This is also in the guidelines.

Alikhan's Example

The appointment of Kalilla Abdullayev as the FPL head is not the first in recent state apparatus personnel changes, which raises questions in the professional community. In April this year, former Prime Minister of Kazakhstan Alikhan Smailov headed the Supreme Audit Chamber (SAC). SAC audits all ministries' activities in general, including audits of budget expenditures and the like.

That is, the former prime minister is now engaged in auditing the activities of the government he headed and checking the effectiveness and implementation of decisions implemented under him. One can only guess whether Smailov will be able to approach the assessment of his work as prime minister rigorously and give appropriate criticism.

However, the SAC head is confident that his experience as the previous head of government will help him supervise all adopted plans. Meanwhile, the Inter Supreme Audit Institution recommends that government members not work in an Audit Chamber (in our case, the SAC) for up to five years after leaving a position precisely because this can lead to a conflict of interest.

The Kazakh bureaucracy's bench of players seems too short. Such a state of affairs runs contrary to the principle of separation of powers, the basis for building a democratic construct that balances the entire system. The same people should not be engaged in execution and supervision. Courageous officials who conscientiously fulfill their duties stand to remember the old Soviet saying: "The main thing is not come upon yourselves."

Original Author: Editorial

DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original piece in Russian foc accuracy.