Europe & Central Asia
Uzbekistan risk report
Uzbekistan is one of the most corrupt countries in the world: Corruption is endemic and penetrates all levels of the business, government and social environment. The judiciary is significantly influenced by the presidential administration and foreign companies regularly experience expropriations. In addition, abuse of office, kickbacks and favoritism regularly occur during court proceedings, making dispute settlement mechanisms very inefficient. The anti-corruption legal framework is deficient and lacks regulations on conflicts of interest, gifts and hospitality, facilitation payments, public procurement, and whistleblower protection. Uzbekistan's Criminal Code, which forbids major forms of corruption including active and passive bribery, abuse of office, and extortion is poorly enforced. High-level government officials act with impunity, and the presidential family is currently involved in high-profile international corruption investigations.
Judicial system Very high risk
Uzbekistan's judicial system is highly corrupt. Companies report corruption and favoritism towards local companies to be problematic factors when solving commercial cases in courts (ICS 2016). Office holders gain their position through paying bribes to the directors of their agencies, and then, in turn, use their position to demand bribes (BTI 2016). The constitution provides for an independent judiciary, but judges reportedly often render verdicts requested by the prosecutor general's office and other law enforcement agencies (HRR 2016). Legislation is often interpreted inconsistently and in conflict with other courts (ICS 2016). Lawyers may be reluctant to take on politically sensitive cases especially when dealing with allegations of an official's abuse of office (BTI 2016). The notion of a conflict of interest is largely unknown to civil servants, which combined with the absence of a strong judiciary has fueled corruption to a point where it is unrestrained (BTI 2016).
Uzbekistan is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and it is also member state to the International Centre for the Settlement of Investment Disputes (ICSID).
Police Very high risk
Corruption is pervasive within the Uzbek police. Corruption exists in the entire chain of command of the police; bribes are often passed along to senior officers (OSF 2016). The local police often demand irregular payments from drivers and extort bribes from criminal suspects (OSF 2016). There are reports that the police detains people on false charges as an intimidation tactic to prevent individuals from exposing cases of corruption (HRR 2016). Police investigations and detention of prominent business people are presented by the government as part of anti-corruption efforts, but they are more often part of disputes between the elite (OSF 2016). In recent years, corruption in the police force has been fueled by the rise of criminal groups that control the currency exchange market (BTI 2016). One in five businesses reports paying for security (ES 2013).
Public services Very high risk
Corruption and abuse of office are commonplace in Uzbekistan's public services sector. Individuals routinely pay bribes to officials in order to obtain public services (ICS 2016). Government officials interpret laws inconsistently to extract bribes with impunity (ICS 2016). Local officials often interpret laws to the detriment of private investors, and demand compliance with decrees and instructions that are not publicly available (ICS 2016). Investors express particular concern about the lack of consistent application of the Law on Foreign Investment (ICS 2016). Requirements for licensing, registration, and other permits are frequently amended without notice, creating rent-seeking opportunities for corrupt government functionaries (ICS 2016). Rampant corruption, mismanagement, shortage of financial resources, and a lack of qualifications among bureaucrats have led to an inefficient state administration (BTI 2016).
Starting a business takes fewer procedures and only half the time of the regional average (DB 2017). Likewise, obtaining electricity takes significantly less time than the regional average (DB 2017).
Land administration Very high risk
There is a high risk of corruption in Uzbekistan's land administration. Excessive intervention by local authorities in agricultural policy and expropriations are common problems (BTI 2016). Privately leased lands are allocated from formerly collectively-held lands; the best lands are often allocated to former administration bosses and farmers are often offered bribes to permit the processes (OSF 2016). Most of the investments earmarked for education are directed into the construction of new schools; with the officials representing the companies with the winning bids being the main beneficiaries (BTI 2016). Property rights are defined in the law, but they are not implemented and enforced consistently (BTI 2016). Expropriation is common (BTI 2016) and may be done for a number of reasons including violating legislation and breaching a contract, but also for arbitrary reasons (ICS 2016). Profitable, high-profile foreign enterprises are at greater risk for expropriation (ICS 2016).
Obtaining a construction permit on average takes 23 procedures, significantly more than the regional average (DB 2017). Registering property takes twice as long as the regional average and takes almost twice as many procedures (DB 2017).
Tax administration Very high risk
The Uzbek tax administration is subject to high levels of corruption. Companies consider Uzbekistan's tax regulations to be deficient and lacking clear provisions, leading to non-transparent taxation procedures and vague interpretations of laws to the benefit of corrupt officials (OSF 2016). The tax administration is sometimes used by the government against companies, NGOs, and individuals; corrupt tax officials may arbitrarily impose tax liabilities to force a company's hand into paying bribes (OSF 2016). Tax authorities sometimes seize assets or cut-off funds from companies during dispute resolution in courts and before cases are finalized (ICS 2016). The number of tax payments in a year is almost twice the regional average and more than four times the OECD average (DB 2017). The time required to make the payments is less than the regional average (DB 2017).
Businessman Olim Sulaimanov alleged he was being harassed for bribes worth thousands of dollars by tax officials and reported his story to the foreign press. Following the publication of the case, Sulaimanov allegedly faced harassment from the authorities including Tashkent's prosecutorial anti-corruption department. Sulaimanov was charged by the prosecutors office for offering a USD 30,000 bribe, the same amount he alleges the tax officials tried to extort from him. He is being held in pre-trial detention as of February 2017 (Eurasianet, Feb. 2017).
Customs administration Very high risk
Corruption is endemic within Uzbekistan's customs sector. Companies cite customs restrictions as among the most severe challenges to doing business in Uzbekistan (CCG 2016). Trade across small border posts along the Kyrgyz and Tajik borders is often only possible when paying bribes; these restrictions damage small and medium-sized businesses, but have also led to monopolies to the benefit of some well-connected individuals (OSF 2016). Uzbekistan has very burdensome and complicated import and export regulations (OSF 2016). Under-invoicing in order to avoid paying duties and taxes is common at the Uzbek border (ADB 2014). Oftentimes, customs officials arbitrarily reject foreign import certificates, despite them seemingly conforming with regulations (CCG 2016). The time required and the costs involved to comply with import and export procedures in Uzbekistan is much higher than the regional average (DB 2017).
Several senior employees at Tashkent Province State Customs Committee were arrested on allegations of bribery in October 2014: They are accused of extorting bribes from companies and individuals crossing Uzbekistan's borders, demanding illegal payments in exchange for appointments to the customs service, and taking part in organized crime (Trend, Oct. 2014). There have not been any reports so far of the case going to trial (OSF 2016). A government official was sentenced to six years in prison in addition to a fine of USD 12,000 for selling exit visas to ISIS recruits (Caravanserai, Aug. 2016).
Public procurement Very high risk
Corruption is pervasive in Uzbekistan's public procurement sector. Bribes are often extorted in exchange for lucrative government contracts (ICS 2016). Likewise, foreign investors report frequent bribe requests; those that refuse have had difficulty in sustaining their operations as a result (ICS 2016). Uzbekistan lacks clear regulations on conflicts of interest and does not have a transparent public procurement system in place (BTI 2016). There is not a single approach to public procurement; not all stages of the process have clear rules and requirements, and different bodies wield power over the process (OECD 2015). Uzbekistan's public procurement is carried out electronically on the Commodities Exchange internet portal, and regulations require open and non-discriminating bidding process for foreign investors. Formally, this is an open process, but in practice this is only the case in the initial stage of the process (ICS 2016). Companies report a significant lack of transparency in the final stages of the bidding process, which involves a direct negotiation of the contract between the government and the bidders (ICS 2016). Another reported form of corruption in procurement is the establishment of shell companies, which bid on and win contracts, and subsequently, go bankrupt without delivering any goods after receiving payments (OSF 2016). It has been alleged that the money earned is split between corrupt government officials and those connected to the shell companies (OSF 2016). Transparency International classifies Uzbekistan's defense industry as having a very high risk of corruption; procurement in particular is subject to a critical risk of corruption (GDACI 2015).
A prominent corruption case involves Gulnara Karimova, the oldest daughter of President Karimov. Gulnara Karimova allegedly extorted bribes totaling over USD 1 billion in exchange for helping telecommunications companies obtain operating licenses. Swedish company TeliaSonera paid USD 381 million in bribes and promised an additional USD 75 million (OCCRP, Mar. 2015). In 2015, TeliaSonera paid a combined USD 1.4 billion to U.S. and Dutch prosecutors to settle the charges (Market Watch, Sept 2015). Similarly, Russian-owned cellular company VimpelCom agreed to pay USD 835 million to settle charges brought by U.S. and Dutch authorities for its role in the case (The Guardian, Feb. 2016). While, Dutch bank ING Group is subject to an ongoing investigation over its failure to report irregular transactions related to the VimpelCom case (Reuters, Mar. 2017). Switzerland's Attorney General's Office froze over USD 790 million in funds on Gulnara Karimova's bank accounts that they suspect to be connected to the case (OCCRP, Jan. 2017).
Natural resources Very high risk
There is a high risk of corruption in Uzbekistan’s natural resource sector. Many of the largest state-owned enterprises (SOEs) used to be government entities before they were spun off; many of these SOEs still exercise government powers (ICS 2016). Corruption has allowed the country’s elite to illegally appropriate the country’s resources (TI 2015). The Uzbekneftegaz National Holding Company is dominant in the oil and gas industry, and even though there is no legal mandate for the practice, foreign companies need the company’s approval to operate in the sector (ICS 2016). The government uses the licensing process to protect quasi-governmental institutions and companies from competition (ICS 2016). Evidence also shows that the government misuses its power to extract bribes from companies in the licensing process (TI 2015). The value added to GDP by the natural resources sector remains low due to the government’s failure to create an institutional environment conducive to private investment and fair market competition (BTI 2016). Companies operating in oil and gas sector can find information on current tenders, technical requirements and specifications on the website of the Uzbek National Oil and Gas Company’s procurement agency.
Enforcement of anti-corruption legislation is weak in Uzbekistan. Uzbekistan’s Criminal Code criminalizes all major forms of corruption including abuse of office, embezzlement, forgery, active and passive bribery, and extortion, and it does not differentiate between corruption in the public and private sectors. The bribery of public officials is punishable by a fine of up to fifty minimum monthly wages, correctional labor or a three-year jail term, while the acceptance of a bribe can be punished by imprisonment of up to five years. Public officials are prohibited from receiving gifts in accordance with the Code of Ethics of Employees of State Bodies. The bribery of foreign public officials is not addressed in Uzbek legislation. The Act on Countering Corruption entered into force in January 2017. The Act is largely declarative in nature and contains vague definitions; it is expected that the law will gradually be supplemented with by-laws and policy directives from the agencies involved (Kosta Legal, Jan 2017); it furthermore strengthens the penalties imposed for acts of official corruption (HRR 2016). The Act stipulates that if there is a conflict between the Act and a treaty that Uzbekistan is part of, the treaty will prevail (The Tashkent Times, Jan. 2017). The Act also reinforces some penalties in terms of higher fines and compulsory community service (Kosta Legal, Jan 2017). There are no regulations concerning illicit enrichment, and facilitation payments. Government officials are required to disclose income earned outside their public employment, but these records are not publicly available (HRR 2016). Public tenders are regulated by Cabinet of Ministers’ resolutions on measures to improve tenders and competitive bidding in capital construction and to promote involvement of small business entities. No comprehensive legal provisions for the protection of public or private sector whistleblowers are established. Uzbekistan has ratified the UN Convention Against Corruption (UNCAC) and is a signatory to the Istanbul Anti-Corruption Action Plan.
Uzbekistan’s Constitution guarantees freedom of the press, but this freedom is almost totally restricted in practice (HRR 2016; FotP 2016). Critical journalists face physical violence, prosecution, detention and fines (FitW 2016). The government exerts control over almost all media outlets, and independent reporters are often jailed or fined on libel and defamation allegations (FotP 2016). International media are, with a few exceptions, banned from operating in the country (BTI 2016). Journalists who investigate political or corruption issues practice self-censorship out of fear of harassment and imprisonment (FotP 2016). Uzbek state company Uztelecom controls access to the Internet and routinely blocks foreign news media and human rights groups’ websites as well as a variety of key words (BTI 2016; FotP 2016). Uzbekistan’s press is considered ‘not free’ (FotP 2016).
Uzbek civil society is weak and severely underdeveloped due to political constraints (BTI 2016). Informal forms of public organization in the country, such as the ‘mahalla’, have been integrated into the state apparatus and serve as a means of surveillance, rather than the basis for civil society (BTI 2016). The government is wary of NGOs; it regards them as subversive organizations used by the West to encourage social upheaval (BTI 2016). Foreign NGOs are banned from operating in the country (BTI 2016). The government imposes tight constraints on the freedom of association, and unregistered CSOs face arbitrary treatment and harassment. No locally based CSO is permitted to monitor or report on corruption in Uzbekistan (ICS 2016).
- World Bank: Doing Business 2017.
- Reuters: “ING Investigation Includes Uzbek Transactions by VimpelCom”, 22 March 2017.
- Eurasianet: “Uzbekistan: Whistleblower Businessman Ends Up Behind Bars”, 16 February 2017.
- Organized Crime and Corruption Reporting Project: “Uzbekistan: Prosecutors Questioned Late Uzbek President’s Daughter Gulnara Karimova over Corruption Allegations”, 16 January 2017.
- The Tashkent Times: “President Signs Anti-Corruption Law”, 4 January 2017.
- Kosta Legal: “Uzbekistan: The Anti-Corruption Law Comes Into Force”, 2017.
- Bertelsmann Foundation: Bertelsmann Transformation Index 2016.
- Open Society Foundations: Tackling Corruption in Uzbekistan: A White Paper – 2016
- US Commercial Service: Doing Business in Uzbekistan – 2016 Country Commercial Guide.
- US Department of State: Human Rights Practice Report 2016.
- US Department of State: Investment Climate Statement – Uzbekistan 2016
- Freedom House: Freedom in the World 2016.
- Freedom House: Freedom of the Press 2016.
- Market Watch: “Telia To Pay USD 1.4 Billion To Settle Bribery Probes”, 15 September 2016.
- Caravanserai: “Uzbekistan Tracks down Facilitators of ISIL”, 8 August 2016.
- Eurasianet: “Fresh Arrests at Part US-Owned GM Uzbekistan”, 23 June 2016.
- The Guardian: “VimpelCom pays USD 835 million to US and Dutch over Uzbekistan Telecoms Bribes”, 19 February 2016.
- OECD: Anti-Corruption Reforms in Uzbekistan – Round 3 Monitoring of the Istanbul Anti-Corruption Plan 2015
- Transparency International: Government Defense Anti-Corruption Index 2015.
- Transparency International: Overview of Corruption and Anti-Corruption: Uzbekistan 2015.
- Organized Crime and Corruption Reporting Project: “How The President’s Daugther Controlled The Telecom Industry”, 22 March 2015.
- Asian Development Bank: Analysis of Informal Obstacles to Cross-Border Economic Activity in Kazakhstan and Uzbekistan 2014
- Trend: ‘Uzbekistan detains Tashkent customs officials on bribery charges’, 1 October 2014.
- World Bank: Enterprise Surveys 2013.