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Arbitration

Under the New York Convention 1958, the Kazakhstan courts may set aside an arbitral award issued outside the member state if the award was made under its law. However, the position is far from clear-cut in practice and a Kazakh defendant may prefer to comply with an award even if it represents a breach of Kazakhstan’s public order requirements and exceeds the scope of the arbitration agreement.

Banking

Overview
Including: Licences; Supervisory Functions of the National Bank; Financial and Other Requirements; Foreign Investment; Liquidation and Reorganization of Banks

Proposed currency controls could see the imposition of a special currency regime. Its strongest impact would probably be on Kazakh resident exporters, requiring them to remove funds from offshore accounts and hold such funds in non-interest-bearing accounts in Kazakhstan, and to convert hard currency into tenge.

When two of Kazakhstan's systemically important banks defaulted on their debt in April 2009, it exposed a lack of legislation on consensual financial restructurings. A new law provides a procedure for restructuring a bank with the approval of creditors holding at least two-thirds of its obligations. It also introduces a framework for segregating a distressed bank's assets and creating a stabilization bank.

An amendment to the Law on Banks and Banking Activity has significantly increased the regulatory powers of the Financial Markets Supervision Agency. The amendment is intended to stabilize the sector by allowing the agency to suspend the rights and authority of a bank's shareholders and management.

The Financial Markets Supervision Agency has proposed certain amendments to Kazakhstan's capital adequacy regulations in an effort to protect the banking industry, limit its exposure to international investors and prevent the economy from overheating. However, the changes could hit local banks which have sought to tap the international capital markets through securities offerings.

The Kazakhstan Parliament recently passed a number of laws which will be of interest to players in the banking sector. Among them is a law which regulates the legal status, activities, creation, reorganization and liquidation of credit partnerships. New legislation on micro-credit has also been passed in order to assist the development of small businesses.

Capital Markets

Overview
Including: Legislative Framework; National Securities Commission; Organized Market; Professional Participants and Nominal Holders; Share Transfer; Offering Restrictions; T-Bills; Private Securities; Bonds; NBK Notes; Repos and Reverses; Futures, Forwards, Options & Swaps; Pension Funds; Blue-Chip Programme; Documentation

The Law on Securities Markets 2007 sets forth the dual listing requirements for legal entities that wish to place their securities on a foreign stock exchange. The law specifies the conditions under which resident entities may issue shares outside Kazakhstan, but also raises questions as to which entities are subject to it and whether it applies to previously issued shares in addition to new issuances, among other things.

The Agency for the Regulation of the Activity of the Regional Financial Centre Almaty (RFCA) has developed new listing rules for the special trading platform of the RFCA. The new rules do not apply to the entire Kazakhstan Stock Exchange, but similar regulations are due to be introduced by September 2008.

Parliament recently amended the Law on Securities Markets to simplify international public offerings of Kazakh companies. The revised provisions have been successfully tested in the initial public offering of the production arm of Kazakhstan's state oil and gas company on the London Stock Exchange.

In a major step towards the liberalization of currency operations and the export of capital, Kazakhstan adopted a new currency control law in June 2005. In December 2005 the National Bank introduced a number of regulations which clarified the new provisions and expanded the range of foreign investments and derivative transactions open to Kazakh investors, removing the need for a licence from the national bank.

The National Bank of Kazakhstan has approved regulatory amendments which introduce the concept of termless (hybrid) subordinated debt obligations which may be included in Tier 1 capital. This new provision is intended to address the shortage of capital for banks, a consequence of the explosive growth in bank assets brought about by high oil prices and the overall expansion of Kazakhstan's economy.

A new regulation permits certain qualified non-residents to become members of the Kazakhstan Stock Exchange, the country's only securities trading establishment. However, the membership requirements include the existence of certain information exchange agreements between Kazakhstan and the non-resident member's country of incorporation; as yet, there are no such treaties with other jurisdictions.

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Company & Commercial

A new law will shortly come into force to simplify norms in licensing legislation and lighten the burden for entrepreneurs by reducing the number of licences and permits for business activities. Among other things, when registering the termination of a legal entity's activities, it will no longer be necessary to submit an interim liquidation balance sheet and a notification of approval to the judicial authorities.

The concept of a 'corporate dispute' is relatively new to Kazakh law, having been introduced in 2008 by amendments to the Civil Procedural Code. More recently, the definition has been broadened significantly, bringing a wider range of disputes within the competence of the commercial courts.

A number of corporate structures can be used to carry on business in Kazakhstan, but the most common forms are the limited liability partnership and the joint stock company. Officers of these entities must be aware that their actions - or, in some cases, their failure to act - may lead to civil, administrative or criminal liability.

Corporate Immigration

New rules have amended the requirements for the employment of foreign workers. In order to employ foreign specialists, companies must obtain work permits from a local department for employment and social programmes from the available quota, as approved by the government annually.

Derivatives

Amendments to the terminology for financial instruments in the Civil Code could have unforeseen consequences. Previously, the term 'derivative financial instrument' could be held to include derivative securities or derivative contracts, but its definition has been narrowed to cover only contracts. Among other things, this theoretically limits the capacity of Kazakh banks to enter into derivatives transactions.

A decree issued by the Agency of the Republic of Kazakhstan for the Regulation and Supervision of Financial Markets and Financial Organizations significantly expands the scope of derivatives transactions that commercial banks may perform and clarifies the treatment of swaps and foreign exchange transactions.

New legislation enacted by the financial markets regulator limits the types of derivative transaction that may be entered into by Kazakhstan's commercial banks. The legislation is vague and contradictory, but it appears that the regulator wishes to limit transactions which involve assets that are difficult to evaluate or that are intended to circumvent the existing limitations.

Investment companies managing pension assets are the main beneficiaries of a recent regulatory amendment which authorizes them to undertake certain derivative transactions, namely futures, options and swaps for the purposes of hedging. Previously, pension funds could be used only for reverse repo operations with a term of less than 30 days.

Energy & Natural Resources

The Law on Gas and Gas Supply seeks to provide a framework for the developing gas market in Kazakhstan, particularly for liquefied natural gas, liquefied petroleum gas and associated gas. In so doing, it seeks to secure the country's energy and environmental safety and to prioritise domestic gas supply. However, practical questions remain as to how the law will work in conjunction with existing legislation.

In 2011 several new restrictions for obtaining work permits - affecting the ratios of foreign to local employees - were introduced. The government, apparently in response to a backlash from large international oil and gas companies operating in Kazakhstan, introduced exemptions in connection with certain major oil and gas fields. However, certain aspects of the legislation raise practical questions.

A recent Supreme Court decision has provided guidance to the energy industry by clarifying its interpretation of recent legislative changes that prohibited the resale of power by power-supplying organisations. Its ruling resolves an issue which had divided the two industry regulators in Kazakhstan.

In addition to a signature bonus, commercial discovery bonuses and reimbursement of historical costs, subsoil users are subject to a number of specific taxes. These include the main minerals extraction tax - on varying rate scales for mining companies and oil and gas companies - and excess profits tax.

New legislation demonstrates the government's wish to establish greater control over the subsoil industry and to introduce more mechanisms to monitor the performance of subsoil use contracts. The main innovations affect sector regulation and the approvals process, but other key changes affect national security, procurement and the right to international arbitration.

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Insolvency & Restructuring

Kazakhstan's biggest development in the field of restructuring in 2010 was undoubtedly the Special Financial Court of Almaty's decision to recognise a plan for BTA Bank. In part, the rescue was made possible by the provisions of the Restructuring Law, which is similar to UK and US corporate rescue regimes and is intended to allow bank restructurings to be recognised in London, New York and other leading financial centres.

Litigation

The rules on litigation costs in the Code of Civil Procedure are straightforward and generally work well, but when litigation deviates from the standard scenario, their narrow language may give rise to unexpected or contradictory results. Fortunately, the courts often choose to take a simplified and practical approach.

Foreign investors involved in commercial litigation in Kazakhstan are often unprepared for the rigidity of the rules of evidence under the Civil Procedure Code and may not fully appreciate the significance of collecting appropriate evidence in advance.

Given Kazakhstan's economic reliance on its natural resources, it is surprising that aspects of court practice on questions of subsurface use have long been uncertain. A recent Supreme Court decision in favour of the government's right to terminate a subsurface use contract may indicate a new litigation risk for foreign investors.

Kazakhstan's real estate market is developing rapidly as old residential buildings are demolished to make way for new business properties. The acquisition of land for state purposes has suddenly become a pressing subject and has led to numerous court cases.

Securitisation & Structured Finance

Two recent laws relating to national securitization transactions regulate the establishment and activities of special purpose companies, the effects of their bankruptcy remote status and the composition and investment of the assigned assets and their proceeds.

White Collar Crime

The core elements of Kazakhstan's anti-money laundering regime are set out in the Law on Counteracting Money Laundering and Terrorism Financing. It defines the rights and obligations of legal entities and individuals which are subject to financial monitoring and clarifies the authority of the various state bodies that target money laundering and terrorism financing.